Sector Week-in-Review: Homebuilders Drive Market Upward

Nick Perry (Schaeffer's Investment Research) submits: Last week we saw a fairly unbiased picture, in my view, as the distribution of the largest moves was balanced. This week, we find a firm bias to the upside as more than 90 percent of my list shows a gain:

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The action was mostly quiet for the first part of the week, but buyers appeared after the FOMC's interest-rate announcement on Wednesday. Housing took the lead as the SPDR Homebuilders (XHB) traded to its highest level since last May. The iShares Dow Jones Transportation Average (IYT) took the number-two slot as the group ticked to a new all-time high. Oil moved higher and oil-related funds, such as the PowerShares Energy Exploration & Production (PXE) and Oil Service HOLDRS Trust (OIH), also gained ground. Bonds and commodities were the laggards of the week.

Looking over the charts below shows that the top three performing ETFs are all pushing into overbought conditions. (Note - details about the indicators used in these charts can be found at the bottom of this column.) A high reading of the short-term RSI doesn't mean that the uptrend is over ("staying overbought" is often a sign of further advances) but it does put me on the alert for pullbacks or consolidations. The graphs of the iShares Silver Trust (SLV) and streetTRACKS Gold (GLD) shows these groups are retreating from overbought levels but still holding above their 50-day moving averages:

Each chart features the 50-day moving average and a nine-day relative strength index (RSI). I use the moving average (the green line) as a simple way to gauge trends and the RSI (red line below the price) suggests whether the ETF is overbought or oversold. (More information about using the RSI can be found here.)

Index performance this week: