As the market digests its recent gains MoneyShow’s Tom Aspray is looking at stocks in the homebuilders sector, which is now in a seasonally strong period.
The stock market held up pretty well Monday as the S&P 500 is bumping into the 50% Fibonacci retracement resistance in the 1408 area. The McClellan oscillator, a short-term A/D indicator, has risen from a low of -285 on November 15 to a high last Friday at +140. It has now turned lower and a further pullback is likely.
A market correction over the next week or so is expected to be a buying opportunity and, of course, the challenge is to find the sectors and stocks that are likely to be leading the next market rally.
The volume surge in the homebuilding stocks in October 2011 suggested a low could be forming and the fundamental data has been very positive for most of the year. This chart of the homebuilder index, from early in the year, shows that the index typically bottoms in the October-November period and then peaks in April -May.
In the next week or so the leading homebuilders ETF, as well as three top homebuilders should drop back into their initial support zones where new buying could be done.
Chart Analysis: The SPDR S&P Homebuilders (XHB) has had a great year as it is up over 54% versus just a 14% gain in the Spyder Trust (SPY). Many may be surprised that only 26% of the ETF is invested in homebuilders with building products stocks making up over 29%.
PulteGroup Inc. (PHM) dropped back to test its uptrend (line f) on November 15 as it had a low of $14.55. PHM has since rallied back to initial resistance in the $17 area.
NEXT PAGE: Two More Homebuilder Stocks Showing Strength