HOUSING ETFS CLEAR 200-DAY LINES -- A COMPARISON OF HOUSING ETFS SHOWS WHY XHB IS THE STRONGER OF THE TWO -- DR HORTON AND LENNAR ARE HOMEBUILDING LEADERS -- A NUMBER OF REGIONAL BANKS ARE ALSO CLEARING 200-DAY LINES -- US BANCORP IS THE STRONGEST ONE
HOUSING ETFS START TO OUTPERFORM... For the first time in a long time, stocks tied to housing are starting to show good absolute and relative performance. The two main housing ETFs that I follow have moved back above their 200-day moving averages. In case you're thinking of nibbling in that area, you should know that there one of those ETFs is doing a lot better than the other. The reason has to do with their stock weightings. The blue line in Chart 1 is the SPDR S&P Homebuilders ETF (XHB), while the red line is that Dow Jones U.S. Home Construction ETF (ITB). Both are plotted against the S&P 500 (black zero line) which makes them relative strength lines. You can see the two lines rising since the summer. The XHB, however, has gained nearly 8% more than the ITB. Here's why. The five biggest stocks in the XHB aren't homebuilders at all. They're stocks tied to home improvement and home furnishings. Three of the top five holdings in the XHB are Home Depot (+23%), Select Comfort (+140%), and Pier l Imports (+31%). Homebuilders account for only 26% of the XHB versus a much bigger 63% for the ITB. The five biggest ITB holdings are all homebuilders -- DR Horton (7.8%), NVR (-2%), Lennar (+8.2%), Toll Brothers (+9%), and Pulte (-15%). Chart 2 demonstrates why the XHB is doing so much better than the ITB. The biggest holding in the XHB is Home Depot (black line) which is up 23% for the year. The biggest ITB holding is DR Horton (black line) which is up nearly 8%. The message is this. The XHB is a stronger bet because it includes a large number of stocks tied to housing. The ITB is a bet on homebuilders.
Chart 1
Chart 2
RISING HOMEBUILDING ETF IS GOOD SIGN FOR MARKET... Chart 3 shows the SPDR S&P Homebuilders ETF (XHB) rising above its (red) 200-day average for the first time since July. That's a positive sign for housing. So is the fact that its relative strength line may be turning up. The solid line below Chart 3 is the XHB/SPX ratio and shows it in the process of breaking through a resistance line drawn going back two years. Housing has been a huge drag on the U.S. economy, and probably the stock market. That's why any signs of strength in this group are good signs for everyone. Chart 4 compares the XHB/SPX ratio to the S&P 500 over the last five years. The ratio appears to have been basing since late 2008. The circle to the far right shows the recent upside breakout. Since 2007, the stock market has done better when the housing ratio line is rising. Like it is now.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
DHI AND LENNAR ARE HOMEBUILDING LEADERS... If you're looking to invest in an individual homebuilder, the next two should be on the top of the list. The weekly bars in Chart 5 show Lennar (LEN) moving up toward the top of a two-year trading range. A close at 22 or higher would represent a bullish breakout. Its relative strength line (below chart) is also rising. Chart 6 shows DR Horton (DHI) breaking a two-year downtrend line. Its relative strength line has done the same.
(click to view a live version of this chart)
Chart 5
(click to view a live version of this chart)
Chart 6
SEVERAL BANK STOCKS EXCEED 200-DAY LINES... It may be coincidence, but I'm struck at the fact that during the same week that homebuilding ETFs are clearing their 200-day lines, a number of regional banks are doing the same. It's no secret that a weak housing sector has been one of the factors weighing on bank stocks over the last year. It's possible that this week's positive turn in housing stocks may be having a positive impact on regional banks. Three of the strongest regional banks include BB&T, PNC, and USB. All three have cleared their 200-day lines and show rising relative strength lines (below charts). BBT and PNC are also trading at the highest levels in five months. The strongest chart belongs to US Bancorp (USB). Chart 9 shows USB moving above its July high at 27 which puts the bank leader at the highest level in ten months. Any signs that the banking industry is acting better should be another positive sign for the stock market.
(click to view a live version of this chart)
Chart 7
(click to view a live version of this chart)
Chart 8
(click to view a live version of this chart)
Chart 9
AMGEN SCORES BULLISH BREAKOUT... My Monday message showed Amgen testing a three-year resistance line near 60, and suggested it would soon join the growing list of healthcare stocks that were breaking resistance barriers. The monthly bars in Chart 10 show Amgen surging more than five percent this week (on rising volume) to reach the highest level in two years. That puts the stock in position to challenge its 2008 high near 65. The stock's relative strength line (below chart) turned up this spring along with other healthcare stocks.
