Where the Money is Going Now
As the market pulls back, an industry is quietly gathering strength and establishing itself as one of the leaders in the next market uptrend.
With Europe growing less than expected, China growth slowing, and Japan a real concern, money managers are looking for stocks selling stuff mostly in North America.
And US housing-related stocks fits that bill.
During the financial crisis and just before, housing was one of the worst places to be. But the housing industry has been slowly recovering for a number of years now. And many housing stocks have been showing strong growth in sales and earnings for quite a while.
Now all of this conjecture is proven in quarterly numbers for corporations and on stock and index charts. As a trader, we want to know where the money is going so we can be there to receive our share of it.
And as we emerge from a market consolidation or after the next pullback, its even more critical to find these leading industries and sectors. The industries and stocks that make new highs out of strong technical consolidations tend to lead the market higher after a pullback.
And when we look at the housing index, we are now seeing a classic sign of an industry about to take off during the next market uptrend. Here is a chart of the housing index to illustrate.
Note on the chart how the index has moved sideways for several months from about February through July. Over the past few weeks, the housing index has moved into new highs, pulled back a percent or two from that breakout point, and is now surging into even higher levels.
This is a great sign that we should keep top housing-related stocks on our radar. And be ready to pull the trigger on trades once the overall market confirms a new uptrend. Buying long positions on good technical entry points on top housing stocks.
One stock breaking out of a cup with handle base pattern is DHI. This stock only pulled back modestly during the latest increased market volatility and is surging into new highs out of a bullish cup with handle pattern.
Earnings growth has averaged over 45% per year over the past five years and they have beaten by 2 to 10 cents per share over the past 3 quarters. Estimates have gone up about 5% over the past 30 days.
Sales are expected to grow over 30% this year. The PEG ratio is still less than 1 and they are selling for about twice book value.
And Toll Brothers just broke out of a bullish base pattern as well.
Of course, we keep track of all the top stocks in this sector (and all leading sectors) and feature them on our subscription site when they are near an ideal technical entry point.
But only those stocks beating estimates with rising future expectations and top growth stocks. Factors proven to beat the market in the short-term.