The health of the housing industry is important to the U.S. economy, and the technical health of housing stocks is important to the stock market.
The Philadelphia Housing Index (HGX) is one way of looking at housing.
The first chart shows the bubble rise in the HGX in the early to mid-2000s and the subsequent 2006 meltdown. The chart also shows the positive housing recovery the past four to five years.
This second chart is a daily chart of the HGX index compared to the S&P 500. The HGX has outperformed the S&P 500 this year. If we had hindsight, we would have over-weighted it at the beginning of the year.
Lastly, we can look at luxury leader Toll Brothers (TOL). Toll has basically traded sideways year to date but TOL leads the group with an upside breakout in August. Despite the impressive August rally in housing (more impressive considering what the rest of the market was doing this month), if we notice the On Balance Volume line (OBV for short) along the bottom of the Toll chart, we can see that while the OBV line improved in August it did not exceed the peaks set in February and March. So we have this bearish divergence between the price of TOL going up in August but the OBV line not making a new high along with the price action. A bearish divergence like this is not a "run to your online account to sell" signal, but it is an amber light, and we should continue to watch these names. Technicians like to see price and volume move together.
Overall, the charts of the HGX and TOL are still healthy and have held up better than so many names, but housing stock investors should not let their guard down. Money management is what separates winners from losers.