ISE Homebuilders Index (RUF.I) & BMO Junior Gold Index ETF (ZJG.TO)

Broader equity market momentum has slowed in the last few days but a look beneath the hood indicates significant strength in several sectors. Through the summer, major US indices moved up on the back of gains in a few large cap (and large weight in indices) stocks. Now, those stocks have paused but breadth has increased with investors taking profits in early leaders and redeploying capital across a broader spectrum of stocks and sectors. While neutral in the short term, this reallocation indicates improving investor confidence and can be seen as bullish for the medium term.

In particular, US retailers have continued to attract attention with investors responding enthusiastically to strong numbers from sector giants. The retailing sector may remain in the spotlight with several national chains scheduled to report results in the coming week, then focus shifting to the big Black Friday / Cyber Monday holiday sales events which start later next week. Gamestop results on Wednesday could attract attention from the Reddit / meme trading crowd. Canada and the UK report monthly retail sales tomorrow.

Other sectors attracting renewed interest in the US include homebuilders, technology, health care, and financials. In Canada, financials continue to attract attention between insurance earnings early this month and bank earnings at the end of this month with regulatory permission to boost dividends and buybacks boosting sentiment. Pot stocks have also been attracting renewed attention with the US considering wider legalization. Technology and consumer discretionary stocks have also been attracting more attention lately, particularly clothing related companies.

The coming week brings a flurry of economic reports ahead of next Thursday’s US Thanksgiving holiday, including flash PMI reports on Tuesday, durable goods orders next Wednesday and housing related numbers throughout the coming days. Energy market data may also attract attention with winter approaching and the potential for increased supply from US stockpiles still up in the air. There are two central bank meetings this week, China on Sunday night and New Zealand on Tuesday evening.



In this issue of Equity Leaders Weekly, we take a closer look at sector action in the marketplace, particularly US homebuilding and Canadian junior gold stocks.

Much of the economic data coming out in the next few days is related to the housing market, both sales and prices for new and existing homes. With construction such a significant part of the economy, technical action in construction related stocks can be seen as an important indicator of what investors are thinking about business conditions and their confidence in the economy.

One of the key themes we have been discussing in Equity Leaders Weekly this month is how the sideways trend of the last six months appears to be ending and an upward trend resuming for equity markets. Recent action in the ISE Homebuilders Index (RUF.I) is an excellent example of this change.

The homebuilding sector steadily advanced from January through May, then spent the last six months in a correction/consolidation phase. The group has started to attract renewed interest, first signalled by RUF.I completing a bullish Spread Quadruple Top breakout earlier this month, and confirmed by the recent breakout over 50.00, rally to a new all-time high, and the completion of a large bullish Spread Double Top breakout.

Vertical and horizontal counts suggest potential upside tests for RUF.I near 54.50, 57.90, and 60.80. Potential support appears near 49.35 based on a 3-box reversal.

In last week’s issue of the Equity Leaders Weekly, we highlighted Gold’s major breakout on the back of rising inflation not only in terms of its own technical action, but also that it occurred in conjunction with major breakouts by Silver and Platinum.

The breadth of renewed interest in precious metals can also be seen on the precious metal stock side. Often when a sector changes direction, the seniors in the group take initial leadership and the juniors follow later. In this case, not only have senior precious metal miners turned upward, junior miners and explorers have also turned upward. This indicates that renewed interest in precious metals is broad-based and not confined to a few high weight seniors, a sign of a potentially sustainable rally.The BMO Junior Gold Index ETF (ZJG.TO) has started to turn upwards, snapping a downtrend line last week and continuing to climb. A breakout over $75.00 initial resistance would complete a base and confirm the start of a new uptrend. Should that occur, previous column highs from the previous downtrend suggest potential resistance near $83.65, $87.10 and $88.80, some of which align with vertical and horizontal counts as well. Initial support appears near $69.95 based on a 3-box reversal.