The following is an excerpt from the August 30, 2013 blog for Decision Point subscribers.
In 1960 I was a young Airman in aircraft mechanic school in Amarillo AFB, Texas. We had an instructor who, when we were being especially dense, would say, "I buy you books and buy you books, and all you do is eat the covers!" Every once in a while I see something that makes me remember that saying, like this week when I saw the CNBC.com headline: "As investors shift, housing is the new stock market."
I thought, "What, again!? Even us old folks with short-term memory issues can remember how, after the stock market crash in 2000, housing became 'the new stock market'" until the real estate crash began in 2005.
[Hear More: Rick Sharga: We Are Nowhere Near a Real Estate Bubble]
In an article I wrote in June I pointed out that housing was giving the first signal that it was probably topping. We should revisit that chart and see how things are progressing, but first let's see what it looked like in June. We can see the long-term double bottom, and an advance of about +175% from the 2011 bottom. The two long-term negatives were that the rising trend line had been broken, and the PMO (Price Momentum Oscillator) had topped.
On the most recent chart the only changes are for the worse. The rising trend line break has become decisive (not likely to be reversed). Also, the 6-EMA is close to crossing the 10-EMA, and the PMO is about to cross below its EMA, long-term sell signals both.
Moving in for a closer look on the daily bar chart we can see that a descending wedge has formed, which could precipitate a bounce. This formation is bullish in that it most often resolves upward, but, even if it does, that doesn't mean there will be a trend reversal.
Conclusion: There may still be money to be made in real estate, but I think it will be a lot harder to come by, and it is certainly not an area for those who lack the experience and knowledge to find the opportunities. The trend has turned downward. To those who want to fight the trend, my old instructor would say, "I buy you books and buy you books . . . ."
Technical analysis is a windsock, not a crystal ball.
