Housing Index: Stocks ignoring housing bubble

So far, the stock market has ignored the housing "problem." The bullish thesis runs like this -- first, everybody warned about the coming disaster in housing. The potential housing collapse was covered by every economist, every money manager, every advisory in the nation. So what happened? As far as the broad stock market was concerned -- nothing happened. The home-building stocks got whacked and the rest of the stock market couldn't have cared less.

So what are we to make of the housing situation? Is the stock market (at least up to now) correct? Is the great housing bust simply a bear's fantasy. Has the stock market fully accepted the thesis of the soft landing?

Again, I prefer to look at the charts. Look at the Phila. Housing Index. We see the initial "crash" from just over 270 down to 190, a drop of 30 percent. And since then, we've seen a post-crash rally to the 220 area. But what now? So the big question -- can the Housing Index hold above its 190 low or is that level fated to give way?

I suggest that we keep our eyes glued to this Housing Index. So far, this Index has corrected about 36 percent of its crash losses. The action of this Index in coming months will be crucial.