Home Construction Index Hits A Wall

10/02/08 08:52:12 AM

by Arthur Hill

The Dow Jones Home Construction Index hit resistance at the 200-day, and a break below channel support would signal a continuation of a larger downtrend.

Security: $DJUSHB
Position: Sell

Figure 1 shows daily bars for the Dow Jones Home Construction Index ($DJUSHB). The index advanced to its 200-day with a rising price channel and stalled over the last few weeks. Resistance at the 200-day is proving formidable. Even so, the overall trend is up as long as the channel holds. Look for a move below channel support to reignite the long-term downtrend. Yes, the long-term trend is down because the index is below the 200-day and the 200-day is falling.

FIGURE 1: DJUSHB, DAILY. The overall trend is up — as long as the channel holds.

Graphic provided by: TeleChart2007.

The bottom indicator window shows positive directional movement (+DI) and negative directional movement (-DI). Note that a -DI (red) crossed above +DI (green) over the last few days. Such crossovers can signal the start of a trend reversal and channel support marks the last stand for the bulls.

Figure 2 shows 60-minute bars with a head & shoulders pattern over the last five weeks. I drew the neckline through the spike low below 290 because it looks like an overshoot. Neckline support resides at 300. A break below this level would confirm the head & shoulders and also break channel support on the daily chart. Such a breakdown would target a move toward the 2008 lows around 230–250.

FIGURE 2: DJUSHB, HOURLY. A break below the neckline level shown would confirm the head & shoulders pattern and also break channel support on the daily chart (Figure 1).

Graphic provided by: TeleChart2007.

The bottom indicator window also shows positive directional movement (+DI) and negative directional movement (-DI). This time, +DI crossed above -DI, which is short-term positive. Another short-term momentum shift would occur, should -DI move back above +DI. Such a shift could foreshadow a neckline support break.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Home Construction Index Hits A Wall

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