The Ultimate Contrarian Indicator

Amanda Heckman|July 23, 2022

The housing sector took another hit this week.

This news has us turning to a very powerful (and reliable) contrarian indicator.

It also gives you a second chance at a huge buying opportunity.

Here’s what’s going on…

The average home price in the U.S. reached a record $416,000…

Sales slowed for the fifth consecutive month as higher mortgage rates turned folks away…

But crucially, one of the biggest housing market indicators took a turn for the worse.

And that spells opportunity.

Doubling Down

A little more than a week ago, Andy told you that homebuilder stocks were deeply discounted thanks to the market slowdown.

In his words…

Given the news lately, homebuilders have had plenty of downside pressure. The industry is slowing. But investors are making a mistake if they’re selling at these prices.

He urged readers to look at this sector. And he gave out three tickers that readers could get in on ahead of a late summer or early fall boom.

Today, we’re doubling down on that advice.

Here’s why…

We got word this week that homebuilder sentiment has dropped to lows we haven’t seen since the start of the pandemic.

In the July survey put out by the National Association of Home Builders, confidence fell from a reading of 67 to 55.

It was the biggest decline in nearly 40 years (pandemic excepted). And the seventh straight monthly decline.

Confidence has now fallen 24 points since March, when mortgage rates began moving higher.

But here’s the thing…

When pessimism is at its greatest, it usually means a turnaround is coming.

Because when everyone is thinking the same thing, it’s already reflected in the market.

Take investor sentiment, for example.

We have decades of data from the well-known American Association of Individual Investors weekly survey. That data has proven that pessimism tends to be a contrarian signal for above-average market returns.

Even better, studies have found that the more extreme the pessimism, the higher the expected returns, on average. That’s because these extremes in pessimism often occur at market bottoms.

Sentiment is the ultimate contrarian indicator.

Lower homebuilder confidence – combined with our belief that the Fed will soon reverse course and lower interest rates – gives us a huge buying opportunity for a booming short-term play in the sector.

Now, as I’ve asked Andy to explain in Monday’s essay… this doesn’t mean it’s time to buy a second home. Just the opposite.

There’s more pain there… much more.

But pessimism and a slowing market have turned homebuilder stocks into tightly coiled springs… It won’t take much to release the tension and send them higher.

As Andy told you last week, “All it will take is a leader or two beating paltry expectations… and boom. Money in the bank.”

So don’t miss your second chance to get into homebuilder stocks. And if you want to know where to look, give Andy’s essay from last week a read.