The relative ratio of Home Construction vs S&P 500 has fallen to its lowest level in 22 months.
Here’s the chart:
Let's break down what the chart shows:
The blue line shows the relative ratio of the Home Construction Index $ITB vs S&P 500 $SPY
The Takeaway: One group that has been under selling pressure lately has been Home Construction, and we can highlight this weakness in a relative ratio versus the broader market.
Home Construction is one of the most crucial industry groups in America, as these stocks are highly cyclical. They act as an excellent gauge for growth and often act as a leading indicator for the broader market.
Typically, when home construction stocks are trending higher, it's happening in an environment conducive to risk-seeking behavior. Right now, that is not the case, as this relative ratio is at its lowest level in 22 months.
This does not bode well for risk assets, and if we're really in an environment where risk assets are trending higher and bulls are in control, we want to see the home construction stocks catch a bid here…. Right now, they’re not.
Grant Hawkridge | Chief Aussie Operator, All Star Charts
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