FOURTH QUARTER STARTS OFF ON THE UPSIDE -- BUT ON LIGHTER VOLUME -- HOMEBUILDERS LEAD
HOMEBUILDERS JUMP ON GOOD VOLUME... Our earlier update today talked about falling bond yields giving a boost to homebuilding stocks and showed KBH turning up. Charts 1 and 2 show two other homebuilders that had very good days. Centex and PHM both broke out of trading ranges on heavy volume. Both stocks peaked during June when bond yields jumped. Right now, bond yields are dropping. If rates continue to drop, homebuilders may retest their summer highs. The yield on the 10-year T-note yield has dropped to its 200-day average. That could be an important test for yields and homebuilders. The Consumer Discretionary Sector was the day's top group. Financials were also strong.
Chart 1
Chart 2
CONSUMER DISCRETIONARY SPDR ATTRACTS BIG VOLUME... Chart 3 shows the Consumer Discretionary Select Sector SPDR climbing back over its 50-day average (thanks mainly to the homebuilders). Even more impressive is the heavy volume on the day. Chart 4 shows the Financials having a good day as well. The volume wasn't as good in the financials, but the chart pattern looks more positive.
Chart 3
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ALL INDEXES ARE BACK OVER 50-DAY LINES... The S&P 500 SPDRs and the Nasdaq 100 Shares climbed back over their 50-day lines today. They also bounced off lower Bollinger Bands. Given the size of the bounce, however, volume was disappointing. Both markets need to close back over their 20-day lines to repair some of their recent technical damage. It's still too soon to tell if today's buying was an oversold reaction to the start of a new quarter, or the start of something bigger. We'll need to see more follow-through during the second half of the week.
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