HOVNANIAN LEADS HOMEBUILDER BREAKOUT - BROKERS CATCHING UP IN STRONG FINANCIAL GROUP -- VERIZON LEADS TELECOM UPMOVE

HOVNANIAN SPARKS HOME BUYING... Homebuilders are finally joining the rotation into rate-sensitive stocks groups -- like financials, utilities, and REITs. A high-volume breakout in Hovnanian Enterprises is today's main catalyst for the buying of homebuilders. Chart 1 shows HOV breaking through its summer high and its 200-day moving average -- and on very heavy volume (see last green volume bar). Chart 2 shows KB Home breaking through its June peak at 62 -- also on rising volume. Its relative strength line has been rising since early August. Chart 3 shows Centex trading over its 200-day line today.

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BANKS LEAD FINANCIALS -- BROKERS CATCHING UP ... We've pointed out before that banks are leading the financial sector higher. Chart 4 shows the Bank Index (BKX) breaking through its summer high a couple of weeks back and displaying a strong relative strength line. Chart 5 shows, however, that the brokers are starting to catch up. The Broker/Dealer Index (XBD) is trading today at a new two-month high and is one of the market's strongest groups. Its relative strength shows outperformance starting in mid-July. The XBD, however, still needs to clear its June high and its 200-day line to turn its major trend higher. It appears to be heading in that direction. Two of today brokerage leaders are Merrill Lynch (Chart 6) and Morgan Stanley Dean Witter (Chart 7).

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TELECOMMUNICATIONS TURN UP ... Maybe it's part of a move into utilities -- or maybe it's just a turnaround in a neglected sector. But telecommunications stocks are looking better. The AMEX Telecommunications Index (XTC) is breaking out today to the highest level in four months. Its relative strength line turned up a couple of months ago. One of the big reasons is a new 52-week high in Verizon Communications as shown by the weekly bars in Chart 9.

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