The homebuilders suggest the bear market is over

Key points:

• A medium-term moving average for Homebuilders increased for > 20 consecutive days
• At the same time, a long-term moving average for Homebuilders increased for > 15 straight days
• After similar price trend conditions, Homebuilders and the S&P 500 enjoyed excellent returns

The Homebuilding industry cycled from a 1-year low to an established uptrend

For only the 14th time in over 50 years, the homebuilding sub-industry group cycled from a 1-year low to an established medium and long-term uptrend. 

An uptrend condition occurs when the 50-day moving average rises for >= 20 consecutive days and the 200-day moving average rises for > 15 straight days.

The emergence of a new uptrend for a highly cyclical and capital-intensive industry bodes well for the homebuilders and the broad market.

Similar price trend reversals preceded excellent results

When Homebuilders' 50 and 200-day moving averages rise consistently after a 1-year low, returns, win rates, and z-scores for the industry are excellent across all time frames. Three months later, the group was higher 100% of the time, with a max loss of -10.6%, which occurred in 1967.

What's bullish for the homebuilders is bullish for the broad market. A year later, the S&P 500 was higher in all but one case, which occurred in the 2000-02 Dotcom bust. For what it's worth, if you utilize > 20 days instead of >= 20 days for the 50-day average condition, the 2001 signal goes away.

When I apply the signals to sectors, the Consumer Discretionary group outperformed all others a year later. And, as I've highlighted in recent research notes, one would be better off with an allocation to the equal-weighted Discretionary sector ETF versus a cap-weighted one.  

The number of Consumer Discretionary sub-industry groups with bullish absolute and relative trend scores continues to expand after one of the most significant bear market recoveries in more than 60 years.

What the research tells us...

The transition from a 1-year low to an established medium and long-term uptrend for the highly cyclical homebuilding industry adds one more piece of bullish evidence to the bull-bear debate. After similar price trend conditions, the homebuilders and the broad market enjoyed excellent returns with minimal drawdowns. While the macroeconomic environment remains a concern, it's hard to argue with the ticker tape.