Monday, September 9, 2019

How to Identify an Emerging Bullish Trend in a Housing Market

Formation of Double Bottom often foretells the Beginning of a Bullish Market Trend

The Monthly Median Sale Price chart (Formation - 1) shows a classic double bottom formation, with a bullish 'W.' The second drop (#13 - $213,216) remains in line with the first (#10 - $213,108), meeting the classic requirement that the second leg remaining at or above the first one. 

The trend becomes more bullish when the second reversal eclipses the first (#14 > #12). When this trend emerges, the traders (professional traders and flippers) tend to move in. Both trendlines are confirming the strong market fundamentals. 

The normalized Price per SF trend (Formation - 2) is equally bullish as the reversal makes a higher high (#14 > #6), with an up-sloping sideways. More importantly, both trendlines are ignoring the big drop (#13) as an aberration, endorsing the ongoing reversal.

The double bottom analysis with a 'W' formation is often used in the equity market as well. 

 Formation of an Upward Sloping Triangle  often represents a Bullish Market Trend

(Click on the image to enlarge)

The Median Sale Price chart (Triangle - 1) shows the meteoric growth during the first half of the year, followed by healthy sideways within a tight range of $545K to $555K. Even the end of the year (#12) drop –
nothing spectacular – was quickly reversed, pointing to solid market fundamentals. 

The fact that the 2-Month Moving Average trendline follows closely the data line indicates a fairly non-volatile price curve. Both trendlines are however confirming the reversal, including the peak. Any breakout above the prior high of $557K would make the curve even more backward-bending (more bullish).

The normalized Price per SF trend (Triangle - 2) is so bullish that a linear trendline was in order (of course, for the demonstration purpose). The formation of the upward sloping triangle further adds to the bullishness. In an event like this in the equity market, traders would start initiating long positions. 

Again, the moving average trendline proves the lack of month-to-month volatility, though confirming the reversal as well as the fantastic breakout.      

Thank you,

Sid Som, MBA, MIM
President, Homequant, Inc.

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