BIG JUMP IN NEW HOME SALES SENDS HOMEBUILDERS SHARPY HIGHER -- LENNAR AND TOLL BROTHERS LEAD RALLY WHILE SEVERAL OTHERS ARE AT HIGHEST LEVELS SINCE MIDYEAR -- LOWES LEADS SHARP RALLY IN HOME IMPROVEMENT RETAILERS
DJ HOME CONSTRUCTION ISHARES HIT MULTI-YEAR HIGH ... A report that new home sales climbed to the highest level in more than five years has given a big boost to homebuilders and other stocks tied to housing. Chart 1 shows the Dow Jones U.S Home Construction iShares (ITB) surging more than three percent today (with rising volume). More impressively, the ITB is also moving above its May 2013 peak near 26 to confirm the strength of its uptrend. The solid area (above chart) plots a relative strength ratio of the ITB divided by the S&P 500. The homebuilder relative strength line turned up during the fourth quarter and is now at the highest level since last June. That shows a bullish combination of relative strength both on an absolute and relative basis. Cyclical stocks are today's strongest group. While home construction is that sector's strongest group, home improvement is the second strongest. Chart 2 shows the D.J. Home Improvement Retailers Index ($DJUSHI) also surging 3% near a new closing high. That surge is being led by the likes of Lowes (LOW) and Home Depot (HD). Chart 3 shows Lowes (LOW) surging nearly 6% today to lead that index higher. It seems that everything tied to housing is jumping today.
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Chart 1
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Chart 2
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Chart 3
HOMEBUILDING LEADERS ... All homebuilding stocks are climbing sharply. The following charts show five of the leaders. Charts 4 and 5 show Lennar (LEN) and Toll Brothers (TOL) close to exceeding last year's high. The following three charts show Ryland (RYL), Pulte (PHM), and DR Horton (DHI) trading at the highest level since mid-year. Clearly, this is a very broad-based housing rally and speaks well for that industry in the coming year.
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Chart 4
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Chart 5
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Chart 6
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Chart 7
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Chart 8
RUSSELL 2000 SMALL CAP INDEX HITS NEW RECORD ... It's always good to see small cap stocks leading the market higher. That's usually a sign that large caps will follow right behind them. And that's why Chart 9 carries good news. It shows the Russell 2000 Small Cap Index ($RUT) trading above its January high to reach a new record. The RUT/SPX ratio (above chart) has also been climing over the past two weeks and is close to a new high as well. Chart 10 shows the S&P 500 Large Cap Index ($SPX) challenging its January high. The stronger action in smaller stocks increases the odds for a new high. So does today's strong rally in housing related stocks. A strong performance in retail stocks in general is also giving new support to the market.
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Chart 9
