The stock market is in a precarious spot. In some cases, it is relatively easy to argue that stocks could rise or fall sharply from their current levels. It was just the other day I thought we could be on the cusp of a significant global stock market rally. But then yesterday, I noted that a storm could be brewing, because of a bearish pattern potentially forming in the housing sector. The stock market is sure hard to read these days.
When we dig a bit deeper into the housing index, HGX, we can see a couple of interesting points. They suggest the index is on the verge of a breakout and not likely to form that horrible bearish triple top pattern I mentioned yesterday.
First, the (HGX) chart does show there is a substantial level of resistance at 269, which is the cause for my concern. But when we look closely at the relative strength index (RSI) below, we can also see the RSI is now trending higher, which is the first positive sign. The second positive sign is that RSI has yet to reach overbought levels of 70 or higher. The third positive sign is that the RSI appears to be breaking out and is rising above a level of resistance at 60.
The shows how close the index is to breaking out, and 2,630 is the critical level to watch. Again the setup for the RSI points to a bullish formation. The index reached very oversold levels dipping below 30 two times in December. Additionally, the RSI has been in a long-term downtrend since January when it reached severely overbought levels well above 70.
If the RSI can rise above 60 it would signal a breakout. Should that happen