Home Construction Bullish Momentum is Building

Yesterday, several key homebuilders reported quarterly results that were way ahead of Wall Street consensus estimates.

DR Horton (DHI) and PulteGroup, Inc. (PHM) both blew away consensus estimates, easily surpassing both revenue and EPS estimates. Those two, along with Lennar (LEN), were among the top 6 performers on the S&P 500 on Tuesday. KB Homes (KBH) and Toll Brothers (TOL) were among the Top 6 performers on the S&P 400 Mid Cap Index.

This individual stock action is simply confirmation of what's already been taking place on the chart of the Dow Jones U.S. Home Construction Index ($DJUSHB):

Enter Dow Jones U.S. Home Construction Index ($DJUSHB)

I've highlighted this group on my YouTube shows recently, suggesting that the April low was THE low for the group.

You can see from the chart above that RSI has moved back up near 70. An uptrending chart typically shows RSI readings in a 40-70+ range, while a downtrending chart usually sees its RSI top out at 60. Reaching an overbought level like RSI 70 is one solid piece of technical evidence that we have an uptrend in place.

We've also seen the DJUSHB rally vs. the S&P 500 since the end of May. That relative strength surged on Tuesday; now, I'd be looking for the rising 20-day EMA to provide excellent support during any periods of weakness or consolidation on this group.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.