It’s the earnings pre-season, if you will, as 11 S&P companies report next week. The significant reports of next week cover a number of sectors including food (ConAgra, General Mills and McCormick), travel (Carnival), auto (AutoZone and CarMax), tech (Red Hat and Research In Motion) and retail (Bed Bath & Beyond and Rite-Aid).
But most eyes will likely focus on the housing sector, as two of its more prominent names — Lennar (LEN) and KB Home (KBH) — report earnings on Monday and Friday, respectively. In between, we’ll see data on existing and new home sales.
The housing news party actually started Tuesday. The housing market index gained for the third straight month, thanks to strength in single-family purchases and traffic. And Thursday morning we’ll see data on housing starts. [Editor’s note: Housing starts for August rose 1.5% to 598,000 units — the highest level in nine months — just missing analysts’ expectations of 600,000.]
That’s a lot for the market to chew on, especially given how skeptics continue to be proven wrong by a stream of better-than-expected news from the home front.
The positive housing sentiment news caused the SPDR S&P Homebuilders (XHB) to pop more than 4% [on Wednesday] to clear several major hurdles. First, the shares overcame their late-August peak around the $16 level. Second, and perhaps more importantly, XHB is now sitting atop its 100-week and 20-month moving averages. In its brief three-and-a-half-year history, the ETF has never closed a week or month above these respective trendlines.
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For their parts, Lennar and KB Home are very similar. Both were up big today and on major uplegs supported by their 20-day moving averages, although they pulled away from this trendline in today’s action.
LEN is up 116% off its July low; KBH is up 84%. Both have taken out their 100-week moving averages for the first time in at least two years. And, like XHB, both are now trading above their respective 20-month moving averages, which have nearly flattened after declining for more than three years.
What makes this environment even more bullish is that both Lennar and KB Home are the subject of significant pessimistic sentiment. Only a third of covering analysts rates each stock a “buy.”
Perhaps more importantly, analysts have actually been warming to these stocks. Three months ago, only one of nine analysts rated KBH a “buy” (doesn’t he or she look pretty smart right now). That tells us that 1) pessimism is unwinding into buying power, and 2) there’s plenty of pessimism remaining to be unwound.
Could the housing sector unravel at any time?
Yes it could. It wouldn’t take more than a disappointing report or two to knock the stuffing out of the group’s momentum.
But sentiment remains skeptical, and you know how bullish rallies love to climb the “wall of worry.”
The trend in housing is your friend … for now. Might as well hop aboard if you haven’t done so already.
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