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Home Builders Might Be Ending The Trend

Homebuilders have been on an unbelievably big run. Using two different ETF’s, one is at prior highs, and the other broke out to fresh new highs. Let’s start there. XHB was recentlyat a prior high, and the ITB made newer highs.

Amazingly, XHB – the homebuilders ETF, got within 0.01 cent of the prior high and pulled back below the 10 week moving average on Thursday. Everything is still in an uptrend! The only real sign of weakness is the potential for a sell signal on the PPO.

1) SCTR is still at 97.0 which is very strong.

2)Relative strength to the $SPX is in purple. Still near the highs. If it started to break the trend line from early April, that would be another signal of weakness.

3) Price stalled at the prior high.

4) Volume has been strong. This is after Thursday’s move, and Friday’s volume will be an Options Expiration, so it could have a big volume bar to finish the week.

5)Full stochastic shows price still trading in the top of the range for the last 3 months of the year so no real new news there.

6) PPO is trying to hold on the uptrend, but will be very close to a sell signal.

That’s a pretty strong basket of signals.

ITB – the home construction ETF, looks a little different this week. This is the first red week on the price panel since the lows of last October! Price is still holding on the trend line but the red bar is a warning.

All of the other trends recorded on the chart above are intact with one exception. The PPO is already on a sell signal.

The real question to ask for me is to evaluate if this is the end of this big trend? I don’t know if this is the end, but all the trends are being tested. It’s a good time to be careful if it starts to break down.

Have a great weekend!

Regards,
Greg Schnell, CMT, MFTA

Copper Shows Lots Of Volatility

The last few weeks, metals have been swinging wildly. I have been following Copper and Gold and it has been a wild ride to say the least. I’ll cover off Copper and related miners today. As we wait for the world of electric cars to consume every ounce of copper, the focus for copper mining and production remains high as inventories remain low.

One of the metal mining ETF’s is CPER, which trades like copper. It broke out to a higher high in mid July continuing a series of higher lows and highs, only to gap back down on Monday, July 17th. After a sideways week, copper surged on July 25th and tested the prior highs. In a choppy week copper darted around but closed near the highs. On Monday, July 31, Copper surged higher with a clear break above resistance. By Wednesday, all sense of a new high was gone and copper was back below the 100 MA.

There is a trend of rising highs and rising lows. The volume has been improving, but the volume this week was well outside the June period. With the PPO rolling over onto a sell signal to end the week, its an awfully hard trade to hold.

The hard part is copper is making higher highs and higher lows, but every day is sudden move either supportive or damaging, making it hard to hold. While many investors might not own copper directly, some copper miners have been a robust trade making higher highs.

The chart below is COPX, which is the copper miners ETF. Clearly, a case can be made for higher highs and higher lows. The difficult part is the opening gaps up and down every day. The high volume bars seem to be indicative of short term tops. Now that the COPX ETF is back on a sell signal on the PPO, is it worth holding the metals throughout the third quarter?

When I look at names like FCX and Southern copper, their charts look good. The FCX chart has been pushing higher since June 1 through to July 31, but the PPO is rolling over onto a sell signal again. Which way will price go now?

Looking at SCCO, the chart is even nicer. The stock is up 56% from late November 2022 and broke out to new 52 week highs last week! However, the PPO looks like it is ready for a sell signal.

The bottom line is the copper stocks have been hard to hold and with the indexes starting to retrace, the best gains in copper names might be behind us for a few months. It is so frustrating, as the stocks are just starting to make higher highs, but rolled over in earnest to start August.

If you like the work we do, I’d welcome the opportunity to show you what our members see. You can try out our offering at Osprey Strategic for just $7. We do broad market analysis, macro themes, individual industries, currencies, commodities, bonds, equities and a small but informative amount on Crypto.

Have a great weekend!

Regards,
Greg Schnell, CMT, MFTA

Investors Continue To Believe

The market has continued higher. Period. Despite all the warnings, markets continue to push higher. This is the view over the last month. You can see the dates of each chart in the top left corner and the number of trading days in the lower right corner.

Every sector was a winner for this month of July. Real Estate has been one of the top sectors for two of the four weeks, but it has been as weak as discretionary overall. Commodities had a rough first 1/2, but energy is starting with a strong month of July. Energy has a lot of catching up to do to reach the extremes of the semiconductor industry performance.

In first 1/2 of 2022, energy stayed strong while tech fell away from the leadership position. 2023 has seen an abrupt reversal of that. The chart below is year to date for 2023.

However, since June 1st, some of the main commodity ETF’s have been stronger than the tech universe. The exploration and production ETF is currently doubling the performance of the IGV software ETF, SMH the semiconductor ETF, or XLC the communications ETF.

As oil touches $80, is there more in the tank? I would suspect so as the global energy trade has gone from worst to first again. But the relentless discussion around AI continues to add strength to the tech sector including semiconductors, electrical components and software. It is not a matter of being right or wrong, but the continual shift of what is the strongest lately makes it hard for everyone to always be in the best areas of the market.

If you like the work we do, I’d welcome the opportunity to show you what our members see. You can try out our offering at Osprey Strategic for just $7. We do broad market analysis, macro themes, individual industries, currencies, commodities, bonds, equities and a small but informative amount on Crypto.

Have a great weekend!

Regards,
Greg Schnell, CMT, MFTA

Use These Indicators To Help With Exits

When investors get attracted to one industry, the move can be relentlessly good. Over the years, we have seen semiconductors, software, IT security, cloud, payment systems, or EV’s all go on significant runs to name a few examples.

I doubted home builders as the mortgage rates continued to climb. The reality is the demand for these shares has been insatiable. This table is the year-to-date move in the home builders. Remarkable! Check out the % change column!

Below, I have assembled charts of some of the homebuilders.

The SCTR (StockCharts Technical Ranking) proprietary StockCharts indicator can make outperformance really clear. I think it is worth commenting on how helpful this can be.

The SCTR ranking on every one of these home builder stocks has been pinned at the top. I like to draw a line on the SCTR at 75%. My logic for that line is that when stocks are above it, they are in the top quartile of positive price action compared to their peers.

Eventually the group will break down. How will we know? Eventually, they will no longer outperform. One of the longest periods of outperformance shown by the SCTR was on Tesla at 15 months as an example. It is rare air when a stock holds up for more than three quarters.

On each chart, I’d like to highlight a few reasons to look at the SCTR, as well as other indicators.

1) The SCTR will drift below 75, but it is usually a late indicator for showing when the run in the stock is over. When the group starts to underperform that is a very good clue that the stocks could start to perform in line with the $SPX, but more likely falls to underperformance. Eventually momentum investors will sell the average performance and move to stronger stocks. This change of ownership can create weakness in the chart.

2) My purple area chart shows the relative strength (RS) compared to the $SPX. When a run is over, this indicator will start to break trend first. The trend line break is a clue that the outperformance is changing. As the indicator starts to break to three month lows, it is more of a concern. As this happens, I like to have a strategy for taking profits. If all the stocks start to break the $SPX RS trend, it is worth trying to figure out if any of the big winners should continue to be held. The goal is to get out near the top, not round trip the gains by stubbornly holding on.

3) The moving averages are currently under the price action on all these charts. Eventually the prices will start to drift below the moving averages. This is a more traditional approach of looking for price weakness.

4) The PPO on the daily chart will start to spend time below zero. I haven’t put the weekly charts in this article, but when the weekly PPO’s start to drift below zero, it’s a better clue that the miraculous run is ending.

I’ve posted the charts with little commentary and let the trends on the charts speak for themselves. The stocks all pulled back this week but is this the end of the run? All the charts are holding above important trend lines and bull market characteristics but a few are starting to test some of the trend lines.

One of the home builder CEO’s sold $50 Million in stock in July. Do they see something we don’t see yet? My suggestion would be to watch what investors do. It will be subtle but it will eventually happen. I definitely don’t want to waiting for earnings to slow. The stock will be off 50% by then.

These indicators help me keep the majority of my profits when trends change. I hope you’ll find some of these clues helpful.

DR Horton

DHI

Beautiful uptrend from bottom left to top right. Still holding the up trend.

Hovnanian

HOV

Long trend still holding.

KB Homes

KBH

Long trend is still intact.

Lennar

LEN

Lennar is still holding the long trend.

Pulte Group

PHM

Long term trend is still intact.

Taylor Morrison Home Corp

TMHC

Beautiful long trend. The PPO is making lower highs on every rally so losing some of the momentum.

Toll Brothers

TOL

Short term trends breaking but longer term trend is still intact.

One of the reasons we focus on the performance within an industry group is to help us see changes in market rotation. Within the Osprey Opportunities section of the Osprey Strategic website, we post charts within different themes to help our clients find excellent setups.

In the book StockCharts for Dummies, I focused on different methods to see relative strength. You might like this as a resource book that explains relative strength.

Below is a sample picture of the Osprey Opportunities page for our members. Each image links you into a chartlist of stocks with nice setups based on a theme or industry group.

If you like the work we do, I’d welcome the opportunity to show you what our members see. You can try out our offering at Osprey Strategic for just $7. We do broad market analysis, macro themes, individual industries, currencies, commodities, bonds, equities and a small but informative amount on Crypto.

Have a great weekend!

Regards,
Greg Schnell, CMT, MFTA

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