FINANCIALS CONTINUE TO SURGE -- REGIONAL BANK HOLDERS TURN UP AS WELL -- BANK RALLY IS HELPED BY JUMP IN HOMEBUILDERS -- REITS BOUNCE OFF SEPTEMBER PEAK AND CONTINUE TO SHOW RELATIVE STRENGTH

FINANCIAL RALLY CONTINUES... On Tuesday, I showed the financial sector in the process of turning from a market laggard into a market leader. Chart 1 shows that new financial leadership continuing today. The Financials SPDR (XLF) has now exceeded its mid-November peak at 15.07 to turn its short-term trend back up again. That puts the XLF in position to challenge its October high. The upturn in its relative strength ratio (top of chart) shows financial stocks starting to outperforming the S&P 500 for the first time since mid-October. Similar bullish patterns are now visible in most financial stocks. One of the biggest, which I showed on Tuesday, is Bank Of America. Chart 2 shows that bank leader trading over 17 for the first time in nearly three months. The sector's top percentage gainer today is Zions Bancorp. Chart 3 shows that financial service company surging 12% on huge volume. That's a bullish combination. Both of those stocks are also showing rising relative strength lines. Regional banks are also having a very strong day.

Chart 1

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Chart 3

REGIONS FINANCIAL AND SUNTRUST LEAD REGIONAL BANKS HIGHER... The bank rally is also extending to regional banks. Chart 4 shows Bank Regional Holders (RKH) surging nearly 4% on the day and breaking through its November high on rising volume. Its relative strength ratio (top of chart) has turned up as well. It's usually a good sign for any group when it shows good absolute and relative strength at the same time. Charts 5 and 6 show two of the top regional bank gainers. Chart 5 shows Regions Financial trading over 6.00 for the first time since October. Chart 6 shows Suntrust Banks surging more than 7% on rising volume. One of the reasons for the bank strength may be strong buying in homebuilding stocks as well.

Chart 4

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HOMEBUILDERS SURGE ... It's no secret that mortgage problems related to housing have been one of the biggest influences on banks. It should come as no surprise then to see homebuilders surging at the exact time when bank stocks are starting to rally. Chart 7 shows the Dow Jones Home Contruction iShares (ITB) surging more than 6% today and trading at the highest level since September. Its relative strength ratio (top of chart) has turned up for the first time since since August. Rising volume adds to the credibility of the bullish price action. Lennar is leading the homebuilding rally with a gain of 16% (Chart 8). DR Horton's 6% gain is also helping (Chart 9).

Chart 7

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Chart 9

REITS ALSO RALLY ... Real Estate Investments Trusts (REITS) are also having a good day. [REITs are part of the financial group]. Chart 10 shows Real Estate iShares (IYR) gaining more than 1% today, and bouncing off chart support along its September peak which is a positive sign. [Broken resistance becomes new support]. The rising relative strength line (top of chart) shows REITs displaying new market leadership over the past month.

Chart 10