In 2005 I used cyclical analysis to identify the top in housing. That topping process was covered in a series of articles posted here in 2005 and into 2006, as the topping process matured and then eventually became obvious to all. Cyclically, housing is now at another important crossroads.
The Philadelphia Housing Index peaked in July 2005, which was some 27 months ahead of the equity markets. But like the equity markets and most everything else a low was found in early 2009. Please refer to the weekly chart of the Philadelphia Housing Index below.
I have been saying ever since that low was made that the equity markets have been in a counter-trend bear market rally. In accordance with Dow theory, this rally should prove to separate Phase I from Phase II of the much longer-term ongoing secular bear market. If so, then housing has likely not made its final bottom and we can again use cycles to guide us. In the chart I have marked the intermediate-term cycle lows with an "I" inside of a red box. From the March 2009 low, price obviously moved up and into an intermediate-term high and into a higher intermediate-term low. The fact that an intermediate-term low has been made at a higher level was a positive development. But, in the case of housing, we now have a new intermediate-term cycle underway and it is at risk of making something called a left-translated top.
Let me explain. Note that as the housing index moved up in 2003 and 2004, the intermediate-term cycle advances were much longer than the intermediate-term declines. In other words, the cycle advanced beyond its mid-point and as a result, this is called right translation, which is a bullish cyclical trait. Now note how the intermediate-term cycle advance out of the April 2005 intermediate-term cycle low peaked to the left of its center point, which set that cycle up in a left-translated configuration, which was bearish. As a result of this left-translated intermediate-term cycle top, the index fell below its previous intermediate-term cycle low as it declined into the next cycle low, which is also a trait of left-translated cycles.
From the July 2006 intermediate-term cycle low the housing index moved up into the February 2007 intermediate-term cycle high, which again was a right translated cycle; and note that the decline into the following intermediate-term cycle low held above the previous cycle low, which is a trait of right-translated cycles. However, look what happened when the advance out of the April 2007 cycle low peaked in yet another left-translated manner. This was then followed once again by another left-translated cycle that peaked in February 2008 immediately following its cycle low and once again, lower prices followed into the 2009 low. Again, the advance out of that low was right translated and note that the decline into the following cycle low held above the previous intermediate-term cycle low. This now brings us to the most recent intermediate-term cycle low and thus far the advance out of that low has been weak and is in fact at risk of making a left-translated cycle top.
Thus, housing is at a significant crossroads. Any further decline below the recent low could prove to simply be an additional leg down into the intermediate-term cycle low. But based on what I see at this time, if the recent intermediate-term cycle low is violated, it will, until proven otherwise, appear to set another left-translated cycle into motion. It is my opinion that housing is a key economic indicator and it is at an important juncture. If another left-translated cycle does in fact unfold, then I fail to see how the so-called "recovery" can continue. The key at that point will be the cyclical developments in other areas such as equities, bonds and commodities.
Developments surrounding Dow theory will also be important as will the development of the DNA Marker I’ve found that has occurred at all major tops since 1896. I sincerely hope that people are listening. As I have warned all along, this is a bear market rally and the economy has not been in recovery mode, but rather in dead cat bounce mode in association with the bear market rally. The commentators on TV did not warn you of the top in housing in 2005, the top in commodities in 2008 or of the top in the stock market in 2000 or 2007, and they are not warning you of what is occurring now. Reason being, they don’t know and even if they did, they could not and would not tell you. More information and details of what is really occurring are available for those with the eyes and ears to hear.
