Almost four years ago the Power of the Pattern shared that a falling resistance-line breakout would be good for home builders ETF SPDR S&P Homebuilders (NYSE:XHB). Since then, XHB is up almost 100%. Despite the S&P 500 doing well since 2010, XHB has out performed the S&P by 40%.
Meanwhile, we have noted that a divergence is taking place between home builders and the broad markets that we feel is worth paying attention to.
The above chart shows that the DJ Home Construction Index diverged against the S&P 500 for almost two years (2005-2007) before both fell together in price from 2007 to 2008.
The home construction index has now diverged against the S&P 500 for almost a year and a half. Humbly, I believe it is worth investors' time to watch this divergence and exercise caution if home builders and the broad market break support.