Getting Way Down There

As per our morning discussion, the weakness in financials may be getting plenty of attention but we ought not overlooked the glaring, continued selling in the homebuilders. 

With this in mind, let us examine the XHB ETF for another perspective to see that the XHB's monthly RSI is now at its lowest point since 2009. 

On the monthly timeframe, below, for the homebuilder sector ETF, note the RSI on the bottom pane of the chart.For reference, the RSI is simply the "Relative Strength Index" used to identify changes in technical momentum. Above 50 is generally considered a bullish RSI, with above 70 viewed as overbought. Trending below 50 is considered a bearish RSI pattern, with below 30 considered oversold on any given timeframe. 

Here, the RSI is clearly in bearish territory on the monthly timeframe, which is noteworthy given how many years that spans. In other words, the homebuilders, compete with the XHB having a clearly downsloping 200-day moving verge (on the daily chart) well above price, is in its own bear market as we speak. 

Now, that need not mean the rest of the market must follow suit. However, it is a sign that all is not currently well with the group, at least according to the market. Thus, we must pay close attention to the group to see if we have any signs of stabilization soon or if the deterioration continues and spreads its malady to the rest of the tape. 

Another point worth noting: Just as the first leg higher of a new bull market often sees price becoming and stubbornly remaining/ignoring overbought conditions, the reverse holds true: In the first leg of a new bear market, price often becomes and stays oversold for weeks on end. 

Hence, the stakes are high for bulls to step back in and find a rotation to the homebuilders to stop what is now some obvious bleeding for a major part of the economy.