Trend Signal Now: Home Construction New 5-month Lows

Wednesday, January 8, 2025

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The Homies Hit 5-month Lows

If we're going to make the bear case, I think it needs to start with Industrials and Home Construction.

It's not fair to call what we're seeing in the market a correction, because very few stocks are actually falling in price.

We discussed this yesterday.

But with every market correction, you have the groups that are the leaders to the downside. My friend Ari Wald at Oppenheimer calls these stocks each cycle, "The Culprits".

The way I see it, you can't have a bear market, or a correction of any kind, without there being a group of stocks that are the ones dragging down the rest of the market.

So far, if we had to point to any single group, it would have to be the Home Construction stocks right? These are former leaders that are now hitting new 5-month lows.

Something else I'd like to point out is that while these stocks are technically classified as Consumer Discretionary stocks, they don't trade like them at all. They trade a lot more like Industrials.

As we know, Industrials are the sector with the highest correlation with the S&P500 of all the S&P sectors.

Homebuilders are one of the most important industry groups as well.

Both have been leaders this cycle.

Here's what the Home Construction Index Fund looks like on an absolute basis, quickly approaching the 38.2% retracement of the entire rally off the 2022 lows.

If the market is going to enter into a correction, I believe these are the stocks that are likely to continue to be the laggards.

On the flips side, if they dig in here and catch a bid, that would be constructive for the overall market.

Losing Industrials and Home Construction would not be a characteristic of a healthy bull market.

Also, if there is going to be a correction, expect to see an expansion in the number of stocks that are actually going down in price. So far, this has yet to happen.

In the meantime, this is a great opportunity to take a step back and zoom out.

This is exactly what we did this week during our very first LIVE Monthly Charts Strategy Session of the year.

We reviewed where we are in the current cycle, what some of the potential headwinds could be for this market, and more importantly what the tailwinds could be over the next 2 quarters.

If you want to be more prepared for 2025 and know you have an entire team of professional analysts and traders navigating this market along with you every single day, then Allstarcharts Research is for you.

CLICK HERE to access to this week's video and trade ideas.

I'll see you in there!

JC Parets, CMT | Founder, All Star Charts

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