homebuilderdivergencesept 6

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Almost four years ago the Power of the Pattern shared that a falling resistance line breakout would be good for home builders ETF XHB (see post here). Since the posting XHB is up almost 100%. Despite the S&P 500 doing well since 2010, XHB has out performed the S&P by 40%.

Turning the page forward, we have shared with Premium Members of late that a divergence is taking place between home builders and the broad markets that we feel is worth paying attention too.

The above chart reflects that the DJ Home Construction Index diverged against the S&P 500 for almost two years (2005-2007) before both of them fell in price together from 2007 to 2008.

The home construction index has now diverged against the S&P 500 for almost a year and a half. Humbly, I believe it is worth investors time to watch this divergence and to be careful should home builders and the broad market break support together.