In a Double Barrel Bull Market, AI and Housing Rule the Roost

The Federal Reserve is still talking tough via its dot-plot, which forecasts two more interest rate increases before the end of 2023. But the markets are not agreeing. My money, for now, is with the markets.

As I pointed out in my January 2023 video for StockCharts TV’s Your Daily Five, despite constant worries from perplexed traders and dark pundit banter, a credible bottom formed. Since then, stocks have risen and now look set to move higher, likely with occasional pauses. That’s because the rally is broadening out via a rapid improvement in the market’s breadth, which is accompanying the new highs on the major indexes, as I describe later in the article.

In fact, we are currently in what I call a double barrel bull market, where two major groups are pulling the rest of the market higher. The one everyone knows is AI. The other, more quiet but equally bullish, is the housing sector.

Since lots of people have missed the rally and are now playing catch up, the upward momentum will keep going for a while. Of course, this rally can’t, shouldn’t, and won’t last forever. But if history is any guide, the rest of 2023 and much of 2024 have a built in upward bias, at least based on the phenomenon known as the Presidential Cycle; whose major premise is that the Fed raises rates in the first two years of a presidential term (which it has) and lowers them in the last two years (which seems highly likely).

AI Poster Child Makes New Highs

The poster child for the AI rally is the Invesco QQQ Trust (QQQ), as it houses the large-cap tech stocks, which are moving higher based on expectations of large profits in the future from increasing automation and whatever AI eventually delivers.

Last week, QQQ made another series of new highs. But, by Friday, it looked at bit tired. Thus, it makes sense to expect some sort of consolidation. A move back to the 20-day moving average is not out of the question.

Lennar’s Goldilocks Quarter

For the past several years, I’ve written extensively about the homebuilder stocks and related sectors. That’s because this area of the market continues to move higher. Moreover, the more negative investors become on the sector, the higher it goes.

In fact, as I detail in this Your Daily Five video, the homebuilders are in what can only be described as a bullish Megatrend, which shows no sign of slowing.

Take, for instance, the recent action in leading homebuilder Lennar (LEN), a longstanding holding in my Joe Duarte in the Money Options portfolio, and a personal holding. Its most recent earnings report blew past analysts’ expectations on both earnings and revenues as the company again offered a positive outlook. Naturally, the shares broke out to a new high.

What makes Lennar’s earnings most interesting is the company’s management of its inventory – not too hot, not too cold. Moreover, the company’s Executive Chairman Stuart Miller noted that home buyers have come to accept the “new normal” status of interest rates, adding “demand has accelerated.” He concluded by noting: “Simply put, America needs more housing, particularly affordable workforce housing, and demand is strong when price and interest rates are affordable.”

In other words, unless interest rates climb significantly higher, the housing sector, from the point of view of homebuilders, is in better shape than many investors may think.

And here is something else to consider. Lennar is trading at a P/E of 9.46, while Nvidia (NVDA), the biggest benefactor of the AI trend, is trading at a P/E of 54.91.

Bond Yields Hold their Ground

Bond yields remained below their recent top level of 3.8% as 262,000 Americans filed for unemployment benefits, an increase of 17,000 from the prior week. In addition to the stable inflation pictured in CPI and the rolling over of producer prices (PPI) released earlier in the week, bond traders breathed a sigh of relief.

Buried in the jobless claims number were over 7,000 new filings in Texas, the highest number of new claims in the U.S. for the week. Let’s put this in some perspective. Based on recent U.S. Bureau of Labor Statistics numbers, the Lone Star State accounted for 7% of the total U.S. GDP. Moreover, in Q4 2022, Texas accounted for 9.5% of total U.S. GDP, which means the largest economy in the U.S. is starting to feel the pinch of the Fed’s rate hikes.

On the other hand, Texas has received the largest number of new residents of any state in the post-COVID period. All of which means that for now, even in a slower economy, there is still a tight supply of housing combined with high demand. Texas is not alone, as the sunbelt remains attractive to many people looking to escape high taxes and challenging employment situations.

This confluence of data, rising initial jobless claims, slowing inflation, and a coincident slowing of the Chinese economy has led to an encouraging reversal in U.S. Treasury bond yields, which will likely benefit the homebuilders. That’s because, with lower bond yields, we’re already seeing an increase in mortgage activity, as the chart above shows.

The 3.85% yield on the U.S. Ten Year Note remains 3.85%, roughly corresponding to 7% on the average 30-year mortgage. So, if yields remain below this level, the odds favor a continuation of the steady performance of the homebuilder sector.

Incidentally, I have expanded my coverage of the housing and real estate markets in a new section for members of my Buy me a Coffee page, where you will get the inside scoop on what’s happening in these important sectors. This crucial information complements the stock picks at Joe Duarte in the Money Options.com You can start by reviewing my extensive report on the outlook for the homebuilder sector here

NYAD Improves SPX and NDX Look to Consolidate

The New York Stock Exchange Advance Decline line (NYAD) continues to improve. As long as it’s above its 50-day moving average, that’s signaling stocks are back in an uptrend.

The Nasdaq 100 Index (NDX) moved above 15,000 and is due for a pause. But in this market, any pause may be short-lived. ADI and OBV remain in bullish postures.

The S&P 500 (SPX) moved above 4400 and looks set to take a breather. As with NDX, any pause may not last. Both ADI and OBV look to be in good shape.

VIX Makes New Low

The CBOE Volatility Index (VIX) broke to another new low last week as call option buyers overwhelmed the market. As I noted last week, this is probably a little too much bullishness all at once, so I expect a bit of a bounce in VIX, which will likely lead to some backing and filling in the market.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity is Increasingly Stable as Fed Holds Rate Hikes

With the Fed on hold, the market’s liquidity is starting to move sideways, which is a positive. A move below 94 on the Eurodollar Index (XED) would be very bearish, while a move above 95 will be a bullish development. Usually, a stable or rising XED is very bullish for stocks.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
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Stocks Retain Uptrend: Focusing on the Right Homebuilder in a Volatile Market

The release of the March payrolls numbers threw a wrench into the notion that the US economy is slowing. At the same time, given all the negative data which preceded it, the big question is when the market will start to doubt the veracity of the monthly employment numbers.

Just a week ago, the stock market was back in a technology sector-fueled uptrend. But, on April 4, a major trend reversal took hold as JP Morgan (JPM) CEO Jamie Dimon remarked that the banking crisis was nowhere near over and that the repercussions would last for years. His remarks were reinforced by a slew of data showing a rapid slowing of the US economy.

By Thursday, ahead of the Good Friday market closing, the market had found support. But when the employment data was released on April 7, 2023, everything was once again up in the air, although the stock index futures moved slightly higher on the news.

The report delivered lower-than-expected private jobs at 189,000. A higher-than-expected number of government jobs boosted the overall print, which totaled 236,000. Hourly wages rose slightly, but hours worked dropped slightly. The highest number of new jobs was in the waiter/bartender category.

That was seen as a middle-of-the-road number. Yet it doesn’t jibe with the private market data.

Private Market Data Points to Worsening Labor Market

Before Friday’s employment report, Purchasing Managers’ data (ISM, PMI) showed a slowing economy as new orders faltered. Government jobs listings (JOLTS) weakened. The ADP private sector jobs created showed job creation stalling. The recent Challenger Jobs Cut report showed an increase in layoffs.

Inside the ADP data, the numbers from the Southern US, an area of strength, showed net job losses. This is significant, as the South has been the strongest economic area of the country, boosted by the migration of people from the East, West, and Midwest.

Here is the regional breakdown of the ADP new jobs created numbers:

  • Northeast: 141,000
  • Midwest: 132,000
  • West: 95,000
  • South: (-) 228,000

These numbers reflect a slowing in new job creation, not necessarily layoffs. Reductions in manufacturing and financial services led the way, suggesting banking sector weakness. Moreover, manufacturers are struggling as export orders fall, a point made in the ISM and PMI data.

The Challenger Jobs Cut report and weekly jobs claim data from the Bureau of Labor Statistics added to the weakening picture. Challenger reported 89,000-plus job cuts for March, 270,000-plus for the year. The West Coast was the biggest contributor. Here is the breakdown of Challenger’s numbers:

  • East: 13,638
  • Midwest: 21,764
  • West: 48,123
  • South: 6,178

The Technology sector accounted for 102,391 during the first three months of 2023. The bottom line is fourfold:

  • New job listings are falling;
  • New job creation is stalling;
  • Layoffs are increasing; and
  • The number of people requesting unemployment insurance is on the rise.

Bond Yields Collapsed, Mortgage Rates Follow

Before the jobs number, stocks were volatile and bond yields fell. The 10-Year US Treasury Yield index ($TNX) broke decisively below 3.5%, finishing the week below 3.3%, as bond traders bet on a recession. The initial response in muted Friday bond futures trading was a rate uptick to just below 3.4%.

Of note, as I detail below, homebuilder stocks paused. The ADP data, showing job weakness in the South U.S., could be a problem, given that this is where the largest growth area for new homes is currently.

If the bond market is correct, the US economy is heading for recession, and the Federal Reserve will be pressed to lower interest rates. The Fed meets on May 2-3.

Mortgage rates continue to fall, which is generally bullish for homebuilders. A multi-year view of the relationship between bond yields ($TNX), the price action in the Homebuilders Subsector Index ($SPHB), and mortgage rates ($$MORTGAGE) document the close relationship between these three indicators.

To view my homebuilder picks click here.

Focusing on the Right Homebuilder is the Right Approach in a Volatile Market

In the short term, the SPDR S&P Homebuilder ETF (XHB) remains in an uptrend, as it is trading above its 50-day moving average. The current trading pattern suggests a likely continuation of a consolidation pattern. Still, in this market, it’s best to consider individual homebuilder stocks.

That’s because, even though XHB is a useful tool, it’s not a pure gauge of the homebuilder stocks. The ETF holds the stock of companies that supply materials to homebuilders, as well as specialty homebuilders such as Cavco Industries (CVCO). Cavco makes manufactured homes, and although its recent earnings and revenues have been excellent, any type of weakness in the economy—such as a precipitous decline in the job market for the Southern U.S. (ADP data above)—would likely affect it more negatively than other homebuilders.

Comparing CVCO to Lennar (LEN), a homebuilder that targets a higher income bracket, you can see the weakening employment situation in the South was not as large a negative on LEN.

As a result, the action in CVCO and other individual companies in XHB can assert negative pressure on the ETF. In other words, this is one of those times when owning individual homebuilder stocks may outperform owning the entire sector.

I discussed the long-term investment potential in homebuilder stocks in my latest Your Daily Five video, focused on investing in Megatrends. And I’ve just put the finishing touches on a Special Report titled: “How to Invest in the Housing Megatrend,” which is you can download my Buy me a Coffee page.

Breadth Pauses. Nasdaq Holds 13,000.

The market’s breadth did not break last week, but did show some weakness, as the New York Stock Exchange Advance Decline line (NYAD) dipped below its 50-day moving average while remaining above its long-term support line, the 200-day moving average.

The S&P 500 index ($SPX) also held up closing above 4100. 4100-4200 is still an important resistance band. On Balance Volume (OBV) and Accumulation Distribution (ADI) remained constructive.

Meanwhile, the Nasdaq 100 Index ($NDX) held above its breakout level 13,000, which now becomes support. This remains bullish, as it suggests money is now pouring into technology stocks. When tech stocks rally, they give the whole market a boost. Accumulation Distribution and OBV are very bullish for $NDX.

The Cboe Volatility Index ($VIX) has broken below 20, a sign that the bears are throwing in the towel. The recent low is 17. A break below that would signal a severe decline in bearish sentiment.

When VIX rises, stocks tend to fall, which is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

The market’s liquidity remains stable as the Eurodollar Index ($XED) remained above support, near 94.75. A move above 95 will be a bullish development for sure. Usually, a stable or rising XED is very bullish for stocks. On the other hand, in the current environment, it’s more of a sign that fear is rising and investors are raising cash.


To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is a Washington Post Color of Money Book of the Month. To receive Joe’s exclusive stock, option and ETF recommendations in your mailbox every week, visit the Joe Duarte In The Money Options website.
Learn More

Subscribe to Top Advisors Corner to be notified whenever a new post is added to this blog!

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#Stocks #Retain #Uptrend #Focusing #Homebuilder #Volatile #Market