One indicator/index to watch is the Dow Jones Home Construction Index.
This index experienced a bearish divergence just before the 2007 stock market highs. Once it kissed the underside of dual resistance and turned lower, the financial crisis was underway.
The Home Construction Index is experiencing another bearish divergence that’s developed over the past year. And it is now kissing the underside of dual resistance, similar to the pattern in 2007.
Should this key homebuilding(NYSEARCA:XHB) index turn lower here and the S&P 500 (NYSEARCA:SPY) break support at (1) it would mean bad news for market bulls.
Pay attention in the weeks ahead!
What price action do bulls want to see that would break the 2007 pattern? Home construction breaks above dual resistance it is currently testing!
What price action would suggest concern for the bulls? Dual resistance for home construction holds and selling pressure starts pushing them much lower.
In my humble opinion, how the Home Construction index handles the dual resistance test will be very important for the broad market for weeks to come!