HOUSING GROUP CONTINUES TO LEAD -- HOMEBUILDING LEADERS INCLUDE DR HORTON, NVR, AND LENNAR -- HOUSING RELATED STOCK LEADERS INCLUDE MOHAWK, MASCO, AND HOME DEPOT -- COMPARISON OF TWO HOUSING ETFS -- MARKET AWAITS FED DECISION
HOMEBUILDERS CONTINUE TO GAIN ... This is the latest of several positive messages written herein on homebuilders and housing stocks in general. Homebuilders were one of the strongest stock groups on Friday. More importantly, they're also the strongest group over the last month and the last three month periods. That's impressive given a soft stock market. The daily bars in Chart 1 show the Dow Jones U.S. Home Construction iShares (ITB) closing back above its 50-day average (blue line) on Friday. During August, the ITB bounced off its 200-day average and chart support along its May low. Most impressive is its rising relative strength line on the top of the chart. A big part of that strength is coming from homebuilders which dominate the ITB. Some of its housing-related holdings, however, are also doing very well. But let's start with the strongest homebuilders.
(click to view a live version of this chart)
Chart 1
DR HORTON CONTINUES TO LEAD... My September 3 message highlighted DR Horton (DHI) as a homebuilding leader. That's still the case. The daily bars in Chart 2 show the stock still climbing after recently hitting a nine-year high. Its relative strength line (top of chart) is hitting new highs as well. NVR is another homebuilding leader. The daily bars in Chart 3 show NVR nearing a record high. Its relative strength line (top of chart) is already there. Lennar (LEN) is another homebuilding leader. The daily bars in Chart 4 show the stock ending the week above its 50-day average. Its relative strength ratio (top of chart) continues to rise.
(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
HOUSING RELATED LEADERS... Several housing-related stocks within the ITB are also contributing to its strength. Chart 6 shows Mohawk Inds (MHK) nearing a test of its 2015 high. That also represents a record high. Its relative strength line (top of chart) has surged since July. New homes need new carpets. Chart 6 shows Masco (MAS) also nearing a record high. Its relative strength line has jumped as well. Chart 7 shows Home Depot (HD) with a rising relative strength line. The home improvement stock is consolidating above its 200-day line and has a positive look to it. It hit a record high during August. New homes often need work and/or improvements.
(click to view a live version of this chart)
Chart 5
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
BROADER HOMEBUILDING INDEX... An alternative way to participate in the housing upturn is with the S&P Homebuilders SPDR (XHB). The daily bars in Chart 8 show it looking very much like the ITB in Chart 1. The difference between the two is that the XHB gives less weight to homebuilders and more weight to housing-related stocks. The ITB is a purer homebuilding play. ITB's 2015 gain of 9.5% is slightly better than the 8.9% XHB gain. However, the falling XHB/ITB ratio (below chart) shows the XHB lagging behind the ITB over the last three months. That's most likely the result in the surge in homebuilders over those same three months. Both housing ETFs, however, are beating the S&P 500's 2015 loss of -5%.
(click to view a live version of this chart)
Chart 8
STOCKS END WEEK ON UPNOTE... Stocks ended the week on an upnote. The daily bars in Chart 9, however, show the S&P 500 still in a sideways pattern and trading below its 20-day average (green line). Its daily MACD lines (below chart) turned positive for the first time in a month. Chart 10 draws two trendlines above and below the "hourly bars" for the SPX. As I suggested on Thursday, the fact that the lower line is rising, and the upper line is flat, gives it a slightly positive look. But it still has to clear 1993 to turn its short-term trend higher. Traders are waiting on this coming Thursday's Fed decision on short-term rates. Only 23% of traders expect a September rate hike which may explain the market's stability. Dollar weakness may also hint at the same thing. Odds are, however, that the Fed decision will have an impact on the market's short-term trend this coming week.
(click to view a live version of this chart)
Chart 9
