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This issue of Investment Tips
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How can I use this information?
Require timing tools to prove themselves over a long period of time before following them. Ten years is definitely too
short a period to test a forecasting method. Watch the next year to see if the HMI and the S&P 500 continue to
correlate. If they do, the HMI will deserve a place in your forecasting toolbox.

SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!

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SignalTrend
Signals the Trend... in Stocks and Interest Rates                  Backtested 100 Years !
2/9/07
Will a Sinking Housing Market Pull Stocks Under?
Proprietary Graphs, Tables and Analyses - All Rights Reserved
Observations:
● The Housing Market Index was an excellent Stock Market Indicator from 1995 - 2005.
● The Housing Market Index was a poor Stock Market Indicator from 1985 - 1994.
● The Housing Market Index may be a good indicator during Super Sideways Markets.
Summary:  
The Housing Market Index was a poor indicator until the super bull market ended in 2000. New home construction is
one of many factors that affect stocks.  When the total of all factors are extremely bullish, bearish forces are
overwhelmed. The sum of all factors have been neutral during the 2000-2007 period, resulting in a sideways moving
stock market. HMI may have a more dominant affect in the current (generally neutral) environment.

If stocks continue in an up and down, but generally sideways direction like 1900-1924, 1965-1982, 1936-1949, and
2000-2007, the HMI may prove very useful. Time will tell and it's worth watching. If the HMI calls the next turn in the
stock market, it will have earned a higher degree of respect.
This graph shows  the Housing
Market Index (
HMI) plotted along
with the
S&P 500 index one year
later. The
HMI accurately
predicted the stock markets
movements one year in advance.

The
green vertical line represents
July of 2005, when the
HMI began
its unrelenting nosedive, predicting
a severe stock market downturn.
Housing Market Index vs S&P 500
The Housing Market Index (HMI) is produced by the National Association of Homebuilders (NAHB) and represents
home builders estimation of the strength of the housing market based on monthly surveys.  The 1/1995 - 1/2007 HMI is
shown above, superimposed over the 1/1996 - 1/2007 S&P 500. Both indexes are plotted in Logarithmic scale.
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Inflation Forecast
Housing
Market Index
(HMI)
S&P 500
Bearish expectations have been generated by widespread publication of
graphs similar to this one.  The
S&P 500 has closely tracked the HMI for the
ten years shown above.
2
1
This graph again shows  the Housing Market Index
(
HMI) plotted along with the S&P 500 index one
year later. However, all
HMI Data available from
the NAHB Website is shown in this graph.
Housing Market Index vs S&P 500
1985                          1990                          1995                          2000                           2005
Housing
Market Index
(HMI)
S&P 500
2
1
1986                          1991                          1996                          2001                           2006
The Housing Market Index (HMI) is produced by the National Association of Homebuilders (NAHB) and represents
home builders estimation of the strength of the housing market based on monthly surveys.   The 1/1985 - 1/2007 HMI is
shown above, superimposed over the 1/1986 - 1/2007 S&P 500. Both indexes are plotted in Logarithmic scale.
1995                          2000                           2005
1996                          2001                           2006
Observe that the HMI correlated with the S&P 500 during
the sideways period of 2000-2006.
It did not correlate during the 1985 - 2000 period which was
part of the 1982-2000  super bull market.
(1995-2006)
(1985-2006)
1988
'95
1994
1991
The HMI declined during 1988-1991 and
1994-1995. The HMI was not an accurate signal
during these periods since stocks actually rose
while the
HMI fell.