HOMEBUILDER BOUNCE LED BY DR HORTON AND LENNAR -- NASDAQ SHOWS IMPROVEMENT -- BIG CAP TECH STOCKS PUSH TECHNOLOGY SPDR TO NEW HIGH -- TECH LEADERS INCLUDE HPQ, CISCO, ORACLE, VERIZON, AND APPLE -- APPLE HAS BIGGEST INFLUENCE ON TECH SECTOR
HOMEBUILDERS BOUNCE ... A bigger than expected rise in April new home sales gave a big boost to homebuilding stocks at week's end. And it couldn't have come at a better time. Chart 1 shows the Dow Jones U.S. Home Construction iShares (ITB) climbing more than 2% on Friday to end the week above its 50-day moving average. [Two-thirds (65%) of ITB direction comes from U.S. homebuilders]. The ITB recently also found support near its 200-day moving average. The ITB/SPX ratio (below chart) has been testing chart support along its 2013 lows as well. That makes Friday's bounce even more encouraging since homebuilders have been a drag on the rest of the market over the last couple of months. That certainly wasn't the case on Friday. Two homebuilders -- DR Horton and Lennar -- were the second and third biggest percentage gainers in the S&P 500 on Friday.
(click to view a live version of this chart)
Chart 1
DR HORTON, LENNAR, AND PHM SCORE BIG GAINS... Chart 2 shows DR Horton (DHI) jumping 4% on Friday (on rising volume) which put the stock at the highest closing level in two months. Its relative strength line (above chart) also turned up. Chart 3 shows Lennar (LEN) gaining 3.9% on rising volume as well. Its relative strength line also turned up. The fact that both stocks found support along the highs of last autumn is also encouraging. The horizontal line in Chart 3 shows Lennar bouncing off the highs of last September and October just below 38. Previous resistance levels that have been exceeded should act as new support levels on subsequent pullbacks. That's why the flat line turned from red to green last December when those highs were exceeded. Chart 4 shows a similar upturn in PulteGroup (PHM). Those three stocks also happen to be the biggest holdings in the ITB.
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
NASDAQ INDEXES TURN UP ... An encouraging sign for the stock was this week's improvement in the Nasdaq market. The daily bars in Chart 5 show the Nasdaq Composite Index ending the week above its mid-May peak and its 50-day moving average. An even stronger performance was turned in the by the Nasdaq 100 (QQQ) which is the solid gray line in Chart 5. The QQQ is made up of the largest 100 non-financial stocks in the Nasdaq. What Chart 5 is telling us that larger tech stocks are the ones leading the Nasdaq market higher. We can see that in another way.
(click to view a live version of this chart)
Chart 5
TECHNOLOGY SPDR HITS NEW HIGH... With all of the recent concerns about weakness in the technology sector, it may seem strange to see the Technology SPDR (XLK) in Chart 6 hitting a new recovery high. Its relative strength line (above chart) has also broken out to the upside. That tells us at least two things. One is that most of the recent weakness in the technology sector has been limited mostly to smaller stocks. Second, that most large cap tech stocks are doing just fine.
(click to view a live version of this chart)
Chart 6
TECH SPDR LEADERS... Chart 7 show five of the larger stocks in the Technology SPDR (XLK) that have seen relatively big gains over the last couple of months. In order of relative strength, they include Hewlett-Packard, Cisco, Oracle, Apple, and Verizon. Apple always bears close watching because it is the largest stock in the XLK (15%). The weekly bars in Chart 8 shows Apple (AAPL) reaching an eighteen month high and heading up towards its 2012 peak near 676. The red relative strength line shows Apple weighing on the XLK between September 2012 and June 2013. Since then, it's been helping pull the XLK higher. The Apple/XLK ratio has just broken out to the highest level in more than a year. Charts 6 and 7 show that investors haven't abandoned the technology sector. They've just moved out of smaller and riskier tech stocks into larger and safer ones.
Chart 7
(click to view a live version of this chart)
Chart 8
SMALL CAPS AND CYCLICALS SHOW SOME BOUNCE... Two of the weakest parts of the market showed improvement this week. Chart 9 shows Russell 2000 iShares (IWM) ending the week back over its (red) 200-day moving average. That follows on last week's successful test of chart support along its February low. The IWM still has to clear its (blue) 50-day average to turn its trend back up again. But its recent improvement is helping stabilize the entire market. Chart 10 shows the Consumer Discretionary SPDR (XLY) ending the week at the highest level in a month after clearing its 50-day line. Its relative strength line (below chart) is also bouncing for the first time since early March. In fact, the XLY was the market's top sector performer this week. Homebuilders were the biggest gainers in that sector on Friday. One thing missing from this week's market rally was volume. That was especially true on Friday which may have been caused by the start of the holiday weekend. At some point, volume needs to increase to support recent market price gains.
(click to view a live version of this chart)
Chart 9
