There’s a real conundrum in the market. Interest rates have fallen to ultra-low levels, yet the housing market seems to be doing poorly. That doesn’t make sense to Jim Cramer – falling rates should boost housing stocks. What gives?
For insights, the Mad Money host turned to my technical analysis – watch below!
Lang believes that the current confusion has everything to do with time horizon. He says, in the short-term, it’s not unheard of, for rates to go lower while housing stocks also decline.
However over the long term; he says the correlation is inverse.
Looking at charts of the iShares Dow Jones Home Construction ETF, or ITB, versus yield on the 10-year, Lang says each time when yields have fallen, the ITB has ultimately rebounded. It’s just that it sometimes it doesn’t happen, right away.
In other words, there’s a lag between falling rates and rising housing stocks.
Lang believes that currently the market is in this state of inbetwixt in between.
Over the long-term, however, he believes the inverse correlation will prevail. That is, declines in yields will be accompanied by an increase in housing stocks.
And, that’s not the only pattern that gives Lang optimism.
He also says the monthly chart of the ITB has traced out a cup and handle pattern; that’s typically a very bullish formation.
And Lang believes patterns in the charts of lumber futures are also bullish; that is they’ve been working their way higher, slowly but surely. Lang takes the price action as a sign that there’s more demand for new homes than the Street realizes, hence the uptick in lumber.
All told, Lang believes housing stocks are about to rebound.