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The Dow Jones Home Construction index created a “Bearish Head & Shoulders” top from 2003 to 2007. The index ended up losing 90% of its value during the housing crisis with half of the decline taking place once the neckline broke. Over the past five years the index has had a strong rally, taking it to the “underside of the neckline” of that monster bearish pattern.
At the same time, it’s hitting the underside of the neckline, it happens to be hitting a key Fibonacci retracement level and might be creating a “Double Top” at this key price point at (1). Last week the index might have created a lower high and a large bearish wick at (2).
For home builders to move higher, they need to break this heavy resistance as soon as possible!!!