November marks the beginning of the best three-month period of the year for stocks and a brand-new NBA season. Moreover, the sportsbooks have priced in my local OKC Thunder as the Western Conference champions.
It's a fantastic time to be alive.
Now is also a great time to take a step back and assess the underlying trends.
Earlier this year, we outlined our Fab 5 Charts for a 2024 equity bull market.
One of the five key groups we selected was homebuilders, which have been on an absolute tear:
Homebuilders have experienced tremendous markup phases this cycle, nearly doubling in many instances. The visual above shows the SPDR Homebuilders ETF $XHB components sorted by proximity to the 52-week low (the y axis) and 52-week high (the x axis). The 14-day RSI is the size of each bubble.
The homies have been one of the hottest groups of stocks during this bull market cycle.
While many areas of the market are stuck below their prior cycle highs, the SPDR Homebuilders ETF $XHB has already exceeded its first Fibonacci extension level:
The SPDR Homebuilders ETF holds an equal-weight basket of the top 35 stocks in the industry.
As you can see, homebuilders recently suffered a double-digit peak-to-trough decline in the context of a long-term uptrend.
The bulls need to hold XHB above 108 to keep this uptrend intact. On the other hand, we don't want to own these stocks if they fall below our line in the sand and resolve a tactical top.
If the homies are going to dig in here, so should lumber:
Lumber is above the 1993 peak, which served as resistance for multiple decades. As you can see, the market screamed higher once this resistance was cleared in 2020 and has turned the former resistance into support.
After a severe drawdown, wood is carving out a multi-year accumulation pattern:
With the price still 20% below the range's upper bound, the commodity likely needs more time to shape up before making a major upside move.
We only want to own lumber futures above 700, with an initial target of 875. Over longer timeframes, we're looking at a secondary objective of 1,450.
If you're a short-term trader, there's a great setup for you:
Lumber resolved a multi-week continuation pattern at the upper bound of a multi-month bearish-to-bullish reversal. This move also drove prices above the 200-day moving average for the 1st time in over 6-months.
COT Heatmap Highlights
Commercial hedgers extended their largest net-long natural gas position in over 3-years by over 2,200 contracts.
Commercials added over 36,000 contracts and flipped net-long euro for the 1st time since late 2022.
Commercials added over 13,500 contracts to their largest net-short lean hogs position in history.
