ETF Expert

If you attend a class on stock analysis, you would discuss a variety of types of information that investors use to make decisions; that is, you would be taught many ways to identify overpriced and underpriced markets.

For example, you would undoubtedly experience lessons on fundamental data, including cash flow, "intrinsic value" and price-to-earnings (P/E) ratios. What’s more, you would certainly talk about the impact of economic cycles, with an emphasis on GDP, inflation and expansion/contraction.

You may be caught off guard, however, by the negativity that typically surrounds "technical analysis." In fact, the idea that one can evaluate stock assets through price and volume trends is often ridiculed by those who write and teach.

I myself do not denigrate nor "prop up" different disciplines. Since predictive powers elude each methodology, I prefer to view all info as worthy of "possibility."

(This doesn’t mean that I don’t have my favorites. I give a great deal of weight to market psychology through "contrarian" and historical data.)

That said, those who follow "moving averages" might be intrigued to learn that the biggest laggard has recently emerged from a cave. Specifically, the much-maligned iShares Dow Jones Home Construction Index (ITB) has convincingly popped above its 50-day trendline.

After the iShares Dow Jones Home Construction Index (ITB) lost 60% in 2007, and the State Street Homebuilders Index (XHB) lost 50% in 2007, each of these funds has done the unthinkable in 2008. Gone up in value!

Is it telling that one of the worst areas in 2007 is performing better than all comers in 08? Perhaps. Is climbing emphatically above a short-term trend indicative of new fortunes? Maybe.

Yet, more than anything else, the gains in homebuilding are ironic. Why? Because the headline numbers on new home sales couldn’t be much uglier.

New home sales tumbled to the lowest level in 12 years. Moreover, new home sales were 40% lower from December 07 than they were 1 year ago in December 06.

Economists and real estate watchers claim that there’s no "bottom" in sight. That may or may not be true.

Nevertheless, technical analysts would have to be impressed by the potential bottom in homebuilder stock prices. After all, you may have a tough time finding another stock ETF that is currently above the 50-day moving average.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.