STRONG HOUSING NUMBERS BOOST HOMEBUILDERS -- HOME DEPOT BREAKS OUT -- AIRLINES AND TRUCKERS LEAD TRANSPORTS LOWER -- ENERGY SHARES RISE WITH CRUDE -- OVERBOUGHT MARKET SOFTENS
KBH LEADS HOMEBUILDING GROUP HIGHER... Sales of existing homes rose strongly during February which is giving a much-needed boost to homebuilders. Three of the five top percentage gainers in the S&P 500 are homebuilding stocks. The biggest percentage gainer is KBH which is gaining 5%. [KBH also reported last evening a 42% increase in first quarter earnings. Although that was the smallest gain in the last year, the stock is rallying today]. Chart 1 suggests there may be technical reasons for that as well. The chart is representative of the entire group. After peaking last summer, KBH has entered a large trading range between 85 on the top and 60 on the bottom. The January rally failed near the top of that range. The first quarter decline, however, appears to be finding support near the bottom of the range. Today's price advance is also showing strong volume. The 9-day RSI line recently bounced off oversold territory under 30 and is climbing over 50 for the first time in two months. That means that short-term momentum is strengthening. To confirm that an intermediate bottom is in place, however, KBH needs to clear its moving average lines and late-February resistance near 71. The relative strength line beneath the chart shows how badly KBH has underperformed the market since last summer. I'm inclined to view any rebound from current levels as part of major topping pattern. Having said that, however, the stock and the group are entitled to a technical rebound. Interestingly, the strong housing news is boosting interest rates today (on the belief that it will allow the Fed room for more tightening). In the long run, however, it's rising rates that will most likely keep any housing bounce in check.
Chart 1
HOME DEPOT BREAKS OUT... The good housing news may be accounting for today's buying in home improvement stocks and Home Depot in particular. Earlier in the week I showed the retail leader challenging overhead resistance near 43. The daily bars in Chart 2 show it breaking through that initial chart barrier today. Its relative strength ratio is also climbing. The stock isn't completely out of the technical woods yet however. Although I think it will be shortly. The weekly bars in Chart 3 show why. Since the end of 2004, Home Depot has been forming an "ascending triangle". [An ascending triangle shows two converging trendlines with the upper line flat and the lower line rising]. That bullish pattern suggests that buyers are more aggressive than sellers and is usually resolved to the upside. HD is testing the top of that pattern. A decisive close over 44 (which appears likely) would constitute an even more bullish breakout than the one taking place today.
Chart 2
Chart 3
TRUCKERS WEIGH ON TRANSPORTS ... Trucking stocks are falling today on news that YRC Worldwide (formerly Yellow Corp) is slashing its first quarter guidance. The daily chart shows the stock tumbling to a new 52-week low on very heavy volume. The chart below that shows another trucker -- J.B. Hunt Transport Services -- also slipping toward its 200-day average. The relative strength line below Chart 5 compares JBHT to the Dow Transports. The falling RS line shows that the trucker has been a laggard in the transportation group since February. There may also be an energy component in today's 2% drop in the transportation group. Crude oil prices are rising sharply and airlines are selling off.
Chart 4
Chart 5
AIRLINES STALL AT RESISTANCE ... Airline stocks are backing off from chart resistance at their late December peak as shown in the next chart. That's a logical spot to expect some profit-taking to develop. Airlines are especially sensitive to the direction of energy prices which today are up. In fact, crude rose more than $2. Chart 7 shows nearby crude oil futures prices bouncing off the 200-day moving average once again. That explains why airlines are down and energy stocks are up.
Chart 6
Chart 7
ENERGY ETFS FIND NEW SUPPORT ... Energy stocks are gaining along with energy prices and are the day's strongest sector. The next chart shows the Energy Sector SPDR (XLE) having survived a challenge of its 200-day average and moving up to test its March highs. Its relative strength line, which dropped during February, is also starting to level off. The Oil Service Holders (OIH) in Chart 9 are the day's strongest ETF. It too has been leveling off for the last month (hinting at an oil bottom) and appears ready to test its March highs and its 50-day line. Rising oil prices and rising interest rates are two of the reasons behind today's selling in the rest of the market. That and a short-term overbought condition.
Chart 8
Chart 9
DOW DIAMONDS PULLBACK FROM UPPER BAND ... Earlier in the week I showed the S&P 500 backing off from its upper Bollinger band and in a short-term overbought condition. The daily chart of the Dow Diamonds (DIA) shows the same pattern. The chart shows that this is the third time this year that the DIA has weakened after touching the upper band (see arrows). That can be seen more clearly by the %B indicator plotted on the top of Chart 10. The %B plots the two bands like an oscillator. A value of 1.0 means that prices are touching the upper band (which often functions as resistance). That happened two previous times in January and February, and it's just happened again for a third time. In the two prior instances, the DIA fell close to its lower band before stabilizing. At the very least, it may need to retest its (dashed) 20-day average to work off its overbought condition.
Chart 10
