Follow the US Housing Market through this ASX Stock

Analysts are talking of a recession in the United States. That’s bound to have some affect on business confidence for the US home building recovery. Some remain uncertain on the state of the housing market over there.

The first thing I do to get to the bottom of things, if possible, is to bring up a related chart.

If the US housing market is to collapse, then the share price of US housing exposed stocks should start to break lower, and make lower bottoms and tops going forward.

One ASX stock highly exposed to the US housing sector is James Hardie Industries PLC [ASX:JHX]. The company supplies building products, mostly fibre cement siding used in residential construction. The bulk of the company’s earnings come from its operations in the US.

If demand for US housing was slowing and revenues were softening, we would start to see that reflected in the share price of James Hardie.

Let’s bring up the chart, too see what it is telling us.

James Hardie Industries Monthly Chart

James Hardie Industries Monthly Chart

Source: STEX


You can see how the chart broadly reflects the recovery of the US housing sector, from 2011 on. The share price has been making higher lows on the monthly chart since then.

Now we have a recently confirmed low on the monthly chart, that gives us a reference point to track US housing starts and construction, to some degree.

One company doesn’t tell the whole story about the US housing market, so you need to use James Hardie in conjunction with other related charts and indicators. But if the recent confirmed low should fail to hold, then the state of the US housing market is uncertain, and you’d look for other indicators to confirm that view.

However, if the share price of James Hardie should break into all time new highs, then that would tell us concerns over the housing market are likely unfounded; the share price would be pricing in continued strong revenue growth, and indicating US housing construction is still strong.

Don’t get caught up in all the market commentary. Much of it is conflicting. Let the weight of money tell you what is happening in a particular sector, and in the economy at large.

James Hardie is shaping up on the daily chart. For the first time since the previous top in August 2015, the share price has made a higher bottom on the weekly chart. James Hardie just one to watch, and gives us some indication for US housing construction going forward.


Terence Duffy

For Money Morning

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia