Look At This Correlation Between Bonds And Homebuilders

June 26, 2003
Gary Kaltbaum

Well, Wednesday was a fun day. Why everyone got
themselves all lathered up because of the Fed is beyond me. Twelve
rate cuts and the 13th is supposed to have pixie dust in it? Big Al says that
things are getting better…maybe, possibly, could be. Didn’t he say that
several hundred times over the past 24 months?

More importantly, things are happening that you need to know about.

Yes, Big Al cut rates on the short end but the bond market got whacked as the long end spiked up. I believe
rates have bottomed out near-term. Take a look at the chart of the 30 year
bond yield
(
$TYX.X |
Quote |
Chart |
News |
PowerRating) and take a look at the chart of HOMEBUILDER
KB Home
(
KBH |
Quote |
Chart |
News |
PowerRating). Notice
anything? A direct correlation between a head-and-shoulders bottom in the
TYX and the top in HOMEBUILDERS.

The correction I told you was in effect continues…but at the same time, I
wouldn’t sweat it. While the Dow
(
$INDU.X |
Quote |
Chart |
News |
PowerRating) was down 97 points on Wednesday, advancers led
decliners and a host of new breakouts occurred. As long as breakouts continue to
work, go with it. I gather we will come to a point in time when breakouts stop
working and altogether stop…but not yet. But I would continue to go a little
slower as the market works off some froth and puts some doubt into investors’ heads.