Is It Time To Invest In The Housing Market?

09/22/10 08:18:01 AM

by Koos van der Merwe

We all know that home prices have fallen badly with a recession created by banks who offered excessive mortgages, but is it time to start looking to reinvest?

Security: PMI
Position: Buy

PMI is an insurance company that provides protection to lenders and investors in the event of borrower default. They protect mortgage lenders and investors from credit losses, and they help to ensure that mortgages are available to qualified homebuyers. With the economy starting to recover, and home prices at extremely low levels, new buyers are starting to appear. Groundbreaking for new US homes jumped in August to a four-month high, a tentative sign of stability in the housing market.

So, is it time to buy PMI? Charts say yes.

FIGURE 1: PMI, MONTHLY

Graphic provided by: AdvancedGET.

Figure 1, a monthly chart, shows how the price of PMI fell from a high of $50.61 on May 2007 to a low of an incredible $0.36 by April 2009. Since then, the price has recovered to $3.70. The relative strength index (RSI) is suggesting strength ahead.

FIGURE 2: PMI, WEEKLY

Graphic provided by: AdvancedGET.

Figure 2, a weekly chart, shows how the price rose to a high of $7.83 by April 2010 in a trumpet formation, signaling uncertainty. The price fell to $2.60 by August 20 as the RSI gave a sell signal. The RSI has now given a buy signal.

FIGURE 3: PMI, DAILY

Graphic provided by: OmniTrader.

Figure 3, a daily chart, shows the following:

1. A possible inverted head & shoulders formation developing with a target, should the price break above the neckline at $4.00 of $5.44.
2. The RSI volume histogram has given a buy signal at the present price of $3.70.
3. The stochastic RSI cycle indicator has given a buy signal.
4. Finally, the red green strategy vote line has given a buy signal. This indicator has been reasonably effective in the past, as we can see by looking at the chart.
5. The price is currently testing the Vervoort trailing stop-loss, and a break above it is a confirmation buy signal.

I would be a buyer of PMI at present levels. As the market recovers, so should the share price.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.