HOMEBUILDERS LEAD ITB HIGHER -- LENNAR MAY BE NEXT HOMEBUILDER TO BREAK OUT -- THE XHB OFFERS BROADER EXPOSURE TO HOUSING-RELATED STOCKS -- OWENS CORNING IN STRONG UPTREND WHILE USG IS BREAKING OUT -- MOHAWK NEARS UPSIDE BREAKOUT AS WHIRLPOOL RALLIES
US HOME CONSTRUCTION ISHARES TURN UP ... Several of my recent messages have written about the upturn in homebuilding shares. A lot of that has been due to the drop in bond yields and mortgage rates. Improvement in the housing area is also an encouraging sign for the economy. Chart 1 shows the U.S. Home Construction iShares (ITB) recently climbing to the highest level since last August. The ITB/SPX relative strength ratio (top of chart) has been rising since February. Earlier messages have shown upside breakouts in individual homebuilders like DR Horton (DHI), KB Home (KBH), and PulteGroup (PHM). They remain group leaders. Chart 2, however, shows Lennar (LEN) on the verge of clearing its April high. It stands a good chance of being the next homebuilding stock to score a bullish breakout. As its name implies, the ITB is heavily weighted to home construction. Five of its biggest stocks are homebuilders, There's a second housing ETF, however, that offers broader exposure to the housing sector.
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Chart 1
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Chart 2
S&P HOMEBUILDERS SPDR (XHB) ALSO LOOKS GOOD... Chart 3 shows the S&P Homebuilders SPDR (XHB) in the process of clearing its April peak. Its relative strength ratio (solid line) is also starting to turn up. The XHB has lagged behind the ITB (and the market) so far this year, but its chart pattern looks promising. What differentiates the XHB is that it gives lesser weight to homebuilders, and more weight to housing-related stocks in building products, home furnishings, home improvement, and appliances. Several of those groups also look promising.
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Chart 3
OWENS CORNING HITS RECORD -- USG IS BREAKING OUT... Building product stocks are the biggest group in the XHB. The biggest stock in the ETF is Owens Corning (OC). Chart 4 shows that building product leader trading at an all-time high. So are other stocks in the group including Masco (MAS), Fortune Brands (FBHS), and Lennox (LII) which are in well-established uptrends Chart 5, however, shows USG just breaking through its May high.
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Chart 4
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Chart 5
MOHAWK INDS AND WHIRLPOOL MAY BE TURNING UP... Home furnishings like carpets are important to new homeowners. Chart 6 shows Mohawk Inds (MHK) testing highs formed during the spring. An upside breakout in that stock wouldn't be surprising. Home appliances like washing machines are also important. Chart 7 shows Whirlpool (WHR) rising above a falling resistance line to reach a three-month high. The stock has a bullish look to it. I've deliberately looked for stocks in the XHB that may just be starting their moves to the upside. These two certainly qualify.
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Chart 6
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Chart 7
HOME DEPOT TESTS OLD HIGH... In the home improvement category, Lowes (LOW) has already hit a new record. Home Depot (HD) may be next. Chart 8 shows Home Depot (HD) very close to breaking through its May high to a new record. HD is the fifth largest stock in the XHB. An upside breakout would be good for both of them. The message herein is twofold. If you're looking for exposure primarily to homebuilders, the ITB is the ETF to choose. If you're looking for broader exposure to the housing industry, which gives lesser weight to homebuilders, the XHB is the better bet. A secondary message in these charts is that there are still stocks tied to housing that are just starting to turn up. They also offer a way to benefit from a strengthening housing industry.
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Chart 8
MICROSOFT LEADS TECHNOLOGY SECTOR HIGHER... It's always a good sign for the market when technology stocks are helping to lead it higher -- as they've started to do. Chart 9 shows the Technology Sector SPDR (XLK) surging to a new record today. Technology had been one of the market's weakest sectors. Not anymore. The XLK is today's strongest sector. And the XLK/SPX relative strength ratio on top of Chart 9 has just broken out to a three-month high. That's a bullish combination for the XLK and the SPX. Microsoft is today's big technology star. Chart 10 shows Microsoft (MSFT) surging more than 6% (on strong earnings) and challenging previous peaks set in December and April. A new record appears likely. Several other big tech stocks have also broken out lately, including Cisco (CSCO), Facebook (FB), Intel (INTC), and Yahoo (YHOO). With bond yields bouncing, money continues to rotate out of safe havens and back into more economically-sensitive stock groups. That's a good sign for stocks and the economy. And the housing industry.
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Chart 9
