Trading an Undercover Rally

I'm seeing signs pointing to the emergence of a new leading sector... January 29, 2014     Trading an Undercover Rally   A hidden sector heats up Don't blame the data Plus: A critical trading rule   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner Stocks finally bounced yesterday. It wasn't exactly an inspiring performance--and the move certainly didn't reveal too much about the what you should expect after enduring a painful three-day drop that quickly shot the S&P 60 points lower... However, I'm seeing signs pointing to the emergence of a new leading sector. This group of stocks abruptly fell out of favor early last year. But right now, an undercover comeback is in the works. I'm talking about the homebuilders. While everyone is freaking out over the broad market taking a dive, housing-related stocks are creeping higher. In fact, the iShares Dow Jones U.S. Home Construction ETF (NYSE:ITB)/S&P 500 ratio just turned positive for the first time since last July... A significant move higher in these homebuilders could take a lot of investors by surprise for a couple of reasons. First, everyone's worried that rising interest rates will squash the housing market. Housing data has also been squishy lately. New home sales slumped 7% in December. Sure, there are plenty of folks arguing that the unusually cold weather is impacting construction. But we won't know if this theory is true for several months. The way I see it, these negative headlines are helping to set up the perfect stealth rally. It's also important to remember that both the home construction ETF and the retail-heavy SPDR Homebuilders Index ETF (NYSE:XHB) underperformed the S&P in 2013, while home prices actually increased 10.9%. That marked their biggest annual increase since the bursting of the housing bubble--and homebuilders spent the year consolidating instead of ripping higher. Now, we have a situation where the major holdings in both ITB and XHB are looking downright cheap compared to the S&P. Earnings for individual builders also look strong, with DR Horton posting an earnings increase of 86% for the latest quarter off of raised prices [Ed Note: I reveal my favorite homebuilder trade in today's PRO. Click here for the details]. ITB is my preferred homebuilder trading vehicle for a longer-term trade. I like the ETF here and as a potential buy-the-dips play--even if the broad market remains in a funk. As long as the ETF keeps building those higher lows, it's a strong bet heading into what is shaping up to be an uncertain year...         Bigger than Benghazi, the IRS and the NSA Scandals… Combined? It's shocking stuff. Bigger than anything you might hear on Talk Radio. A Florida-based computer expert is breaking an incredible story. Perhaps the biggest political story of the next decade. In short, the last six years of the Democratic Party's agenda could be undone, and this whistleblower is putting everything he discovered up in a free video. You can view it for free, right here.           Rude Numbers Targets, Predictions and Wild Guesses   43% of U.S. companies plan to raise prices in the first three months of 2014, according to a survey by the NABE. That's up from 20% last quarter alone. 18 consecutive profitable quarters for Ford come at the onset of a record 23 vehicle launches in 2014. $159 billion in cash sits in Apple's coffers. 78% of that cash is offshore, meaning Apple can't use it to pay dividends or buy back shares without incurring a significant U.S. corporate tax. $1,260 is where you'll find gold futures this morning. After running into resistance above $1,270 earlier this week, the yellow metal is trying another push higher early this morning... 1,781 is where you'll find S&P futures. The market looks set to open in the red after yesterday's unconvincing bounce...     Rude Trends When to Buy... When to Sell   Sometimes, making money in the markets feels "easy". But you and I both know that perfect trading conditions can't last forever. After all, the market wants to help you part with your hard-earned money. It can be downright devious, too... Right now, your most important task is to avoid taking any major losses. Now's not the time to place any big bets or let losers ride. When a trade's not working, cut it loose. If a mental stop gets hit, don't try to wait it out. You can't hope the markets higher... Also, if you're attempting to short the market, be sure to take profits early and often. Stocks are much more volatile when moving lower. Violent snap-backs and squeezes can easily eat up your profits on the short side. [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner]     Ignore At Your Own Peril Today's Must Read Links   When Your Accountant Wants Tax-Free Income... This is What He Does Is The White House Terrified of the "Secret $200 Retirement Blueprint?" Forget Facebook, Twitter, and Instagram... Here's A New 'Social Network' That Could Bring You Profits In 2014...     BE SURE TO ADD dr@dailyreckoning.com to your address book.       Additional Articles & Commentary: Join the conversation! Follow us on social media:         The Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from The Rude Awakening, click here. Please read our Privacy Statement. 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