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Intraday Market Notes: Homebuilders Are Hot! -- August 16

|Includes:BRP, FBHS, HD, LEN, LL, PulteGroup, Inc. (PHM), TOL, WY

3:45 pm ET: Yesterday we noted that a close in the Transports (DTX) above 513 could easily fuel another leg up in the rally. The index did close above 513 and, well, you can see what happened. Both the Dow Industrials (DJIA) and the S&P 500 (SPX) are close to challenging their previous highs while the S&P 100 (OEX) has whipped everybody's butt by breaking out to a new multi-year high. Woo-hoo!

Certainly, the bulls have something to cheer about, but should we worry whether or not their hopes will be dashed tomorrow? As of late, the Trin has been in neutral territory with a downward-trending bias which is bullish. It's current reading is 0.85 which is not even close to being in contrarian land ( 0.5 or less). The VIX is low but it has the ability to stay low for a long time, and it's not so low as to be worrisome. The VWAPs (a measure of buying and selling pressure) is clearly on the buy side (but this indicator can also change on a dime making it more of a mirror of current activity rather than a portent of future activity). So what this all boils down to is that the market is saying that this leg of the rally is for real and unless some piece of untoward news befalls us (such as a breakup of the Eurozone), then we should expect a continuation.

Homebuilding is hot!
The homebuilding industry (part of the consumer discretionary sector) got another lift today when it was revealed that housing starts hit a four year high. The news not only boosted Toll Brothers (NYSE:TOL), Lennar (NYSE:LEN), Pulte (NYSE:PHM), and Brookfield (NYSE:BRP) but also lifted housing materials suppliers Home Depot (NYSE:HD), Lumber Liquidators (NYSE:LL), Weyerhauser (NYSE:WY), and Fortune Brands (NYSE:FBHS) to new yearly highs. The latter stock, FBHS, broke out of a three month base which is bullish. The homebuilding etf (NYSEARCA:XHB) reflected the advances by some of its constituent holding by also reaching a new high. (FYI: The XHB also pays a 1% dividend.)

Note: There hasn't been a Stock of the Day candidate for a while since I wasn't sure which way the market was going to go, but now that it appears that it's back in bull mode, there are a few candidates worth investigating. Should any of them pan out, a full report will appear here either later today or sometime this weekend, so please stay tuned!