Housing Stocks Predict the General Election

If I had gone to Eton and Oxford, I would certainly have gone into politics, armed with a PPE and feigning a suitably scatty/batty toff type persona of the Boris Johnson variety. That said, I am not sure if I would have gone for the Shredded Wheat/two terms or three terms Cameron comment we heard this week. Presumably the explanation for Our Dave’s Statesman-like comments were the belief that the second term is in the bag.

This is a view which is perfectly understandable if you consider that a healthy housing market is naturally going to favour the Conservative Party. After all, Mrs Thatcher’s Right to Buy your council house was effectively a way of buying Tory votes, given that these new home owners would normally tend to thank those who gave them their domestic bliss. The situation some 30 years later is that Cameron, Osborne, Carney and friends have served up a housing bubble of mammoth proportions. This is over and above what one would normally have expected in the wake of near zero interest rates, via the Help to Buy initiative. As things stand it is clear that we are in a London/South-East real estate bubble; the real question, however, is what may eventually be the trigger to burst it?

That said, in the meantime it is apparent that shares of housebuilders are continuing to party like it is 1999, or indeed, with even greater gusto than they did then. A good example of the genre is Bellway (BWY). Here it can be seen on the daily chart how the stock has not only managed a record high for the year, but achieved it via a gap to the upside. This is certainly a clear show of strength, and one which we would assume could lead to decent follow through. The favoured scenario at this point is seen as being a push higher within a rising trend channel from October. This has its floor close to the bottom of the latest gap at 2,011p. The likelihood now is that while there is no end of day close back below the gap the upside for Bellway shares could be as great as last year’s price channel top at 2,400p over the next 4-6 weeks.

The chart gap figures in the technical picture for Redrow (RDW) in quite a dramatic way, which is something which can be seen in the aftermath of the unfilled gap to the upside last month through former 300p resistance. Gaps through major resistance are always significant, if only on the basis of being a big show of strength. Since the gap higher we have seen a clear bull flag form, all of this within a rising trend channel in place since December. The floor of the channel currently runs at 344p, level with the 10 day moving average. All of this would suggest that while the channel floor remains intact, the upside for Redrow could be towards the late 2014 resistance line projection at 420p as soon as the end of April.

Finally, we have Persimmon (PSN), where it is clear this is the weakest of the three housebuilders picked out here, even though the overall trend here is up within a rising trend channel from October based at 1,655p/50 day moving average. On this basis one would be looking for any dips towards the 50 day line to act as buying opportunities. Only an end of day close back below this notional support level would delay the prospect of a top of October price channel top target to 1,870p over the next month.