Even Housing Is On Fire Again

By Dr. Duru

November 2, 2005

You know a serious rally is in effect when housing stocks are jumping off the screen with 5% and 6% gains the day after the Fed raises interest rates yet again. We just came off of our first two-day rally in what seems like eons. We took a pause to let Greenie have is say, and now, today, the bulls are back to buying. You will be hard-pressed to find any reasons that make much sense for the current celebration. This is just one of those things where the market goes up, well, because it wants to. As far as I could tell, just about everything went up today. The oil-related stocks rallied sharply (see specifically XLE and OIH) even with Wednesday's oil and gas inventory report indicating weaker prices ahead. The strong earnings report from Beazer Homes (BZH) likely helped to propel new life into the housing stocks. For the first time in a very long time, a homebuilder reported robust earnings and revenue growth, raised guidance above analyst expectations, and got paid for all its trouble with a big gain (4.34%) on the day. The chart below shows an example of the power behind the day's rally. This chart is of Centex (CTX), and it is one of the few that that has broken back above resistance at the 50 and 200 daily moving averages.

Google (GOOG) was a notable exception to all the fun - it just barely escaped closing in the red. How fitting would it be for Google to finally stall out just as housing and other cyclical stocks come roaring back? The S&P is certainly awaiting vindication for choosing homebuilder Lennar (LEN) over GOOG for inclusion in the elite S&P 500 index.

While I suspected a bounce from October's extreme levels of negativity, the strength of this particular bounce has caught me, and I suppose many others, by surprise. We are back in bullish rally mode until proven innocent. I still find no reason to suspect that we will make a significant break of the current trading range, but it appears the market is ready to fight the Fed yet one more time. I will also remind everyone out there one more time that this kind of strong and impressive action serves as further confirmation to the Fed that the economy is fine, healthy, strong, and in need of yet more (and heavier?) doses of interest rate hikes. So until the next dose of reality hits, have fun and be careful out there!

DrDuru, 2005