UPSIDE BREAKOUTS SHOW IMPROVEMENT IN HOUSING SECTOR -- NVR, LENNAR, AND MERITAGE HOMES ARE STRONGEST HOMEBUILDERS -- HOME DEPOT, LOWES, AND SHERWIN WILLIAMS LEAD HOME IMPROVEMENT GROUP -- AK STEEL NEARS UPSIDE BREAKOUT --
HOUSING INDEXES TURN UP ... We've written several messages of late about the recent upturn in financial stocks that had been lagging behind the rest of the market since the spring. I expressed the view that a sustained upturn in the stock market was unlikely without some help from the financial sector. Fortunately, financial stocks have finally turned up and have actually shown market leadership during December. Another market group that's been weighing on the overall market has been housing. And even that sector is beginning to show some improvement. The first three charts show three measures of the housing sector and all three have risen to seven-month highs after clearing their 200-day moving averages. Chart 1 shows the PHLX Housing Index (HGX) having broken through its July/November highs. Chart 2 shows the S&P Homebuilding SPDR (XHB) breaking clearing its November high on rising volume. Chart 3 shows the Dow Jones US Home Construction iShares (ITB) having just cleared its 200-day line. The relative strength lines below Charts 2 and 3 actually show a little leadership during the month of December. I'm not necessarily expecting housing stocks to show much upside leadership. Any signs of strength in that group, however, should be a further hint at an improving economy and a stronger stock market.
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Chart 1
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Chart 2
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Chart 3
HOMEBUILDING LEADERS ... Although the two ETFs shown above have both turned up which shows improvement in housing-related stocks, the ITB in Chart 3 is the better measure of homebuilding stocks. Home construction accounts for 63% of the ITB versus only 28% in the XHB (Chart 2). Other housing-related groups in both ETFs include building products, home furnishings, and home improvement which have been very strong of late (more on that later). Several of the more heavily-weighted homebuilding stocks have broken out as well. Chart 4 shows NVR breaking through its 200-day average to reach a six-month high. NVR is the most-heavily weighted stock in the ITB. Chart 5 shows Lennar (the third biggest ITB stock) turning up as well. Chart 6 shows Meritage Homes (MTH) also in a new uptrend. Several other homebuilders (DR Horton, Toll Brothers, KB Home, and Ryland are testing their 200-day lines and may be the next to turn up).
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Chart 4
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Chart 5
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Chart 6
HOME IMPROVEMENT LEADERS... I usually take it as a good sign when home improvement stocks are on the rise, since they're also reflective of the health of the housing sector. The three shown below are also in the top ten weightings of the ITB. Charts 7 and 8 show Home Depot and Lowes Companies moving up toward their spring highs. Their relative strength lines (below charts) have turned up as well. Sherwin Williams is even stronger. Chart 9 shows that leading stock having cleared its spring high to reach a new record. Its RS line has turned up as well. All of those stocks also account for recent strength in retail and consumer discretionary stocks which is another sign of increased optimism among investors. A few weeks back I wrote that rising retail shares were anticipating stronger retail spending, which has been confirmed by recent numbers. I take the same view with housing stocks. The recent upturn in housing-related stock indexes (which includes several homebuilders) strongly suggests that the housing sector is finally on the mend.
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Chart 7
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Chart 8
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Chart 9
ANOTHER STEEL BREAKOUT... My messages for the last two Tuesdays showed upside breakouts in Nucor and US Steel as part of a stronger steel group. Here's another steel stock that appears on the verge of a bullish breakout. Chart 10 shows AK Steel climbing nearly 5% today and nearing a challenge of its 200-day average (red line) and summer highs. Its RS line (below chart) is rising as well. A close over 15.5 (which appears likely) would constitute a bullish breakout. AKS is the strongest percentage gainer in the materials group today. US Steel is right behind.
