Recently many of the U.S. home builders sold off after making huge gains since the beginning of the year. Since bottoming out in October of last year, the Standard & Poors Homebuilder's Index ETF (XHB) has more than doubled in price.
Yesterday's price in XHB stands out because it marked the second day of selling on increasing volume, as the chart below shows. It's also important because this index has topped out in 2010 and 2011 at the same time as the S&P 500 index also topped.
Click on charts to enlarge:
Two days of weakness in and of itself doesn't mark a top, so I looked at another chart that I've used in the past to look for a turn in housing stocks. On Finviz.com they have a chart for random length lumber. When I looked at the current weekly view it caught my eye as it has been a decent leading indicator for home building stocks.
What's interesting is that the weekly chart of lumber has signaled the top for the home builders the previous 2 years, and it's lead to big declines. There's no guarantee that it will work again, but it's worth noting.
Here are the charts of XHB when they topped out in 2010 and 2011.
2010 top:
2011 top:
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