The Dow Jones U.S. Home Construction index ($DJUSHB) hit its highest level in two months this morning and a close above 600 would likely signal more strength to come. DR Horton (DHI) and NVR, Inc (NVR) represent two of the strongest stocks in the group technically and are both poised to lead the rally subsequent to a breakout. While the 10 year treasury yield ($TNX) is a proxy for mortgage rates and has been up sharply since late October, traders are apparently focusing much more on the reason for a rate hike - a potentially strengthening economy. Below is the current technical state of home construction, along with the bullish chart patterns of DHI and NVR:
The red arrows mark key resistance (price and trendline) while the green arrows mark key price support. At the very top of this chart, you'll see that the DJUSHB recently cleared trendline resistance and today is attempting to clear price resistance at 600. Both DHI and NVR have been very strong relative performers as they've continued to print equal or higher highs the past few months while the underlying index drifted lower. Higher prices in home construction stocks benefit the consumer discretionary sector (XLY).
Happy trading!
Tom
