Ride on Housing's Coattails

A picture-perfect jobs report on Friday was followed up a palatable statement from the Federal Reserve Tuesday. The Fed was far from hawkish, downplaying the U.S. economic recovery and saying it still sees significant downside risks. The central bank reiterated its pledge to keep interest rates low through at least 2014. I was happy to see the market's reaction to the statement, though I'm surprised the Fed is remaining so cautious on the economy in light of the mostly favorable economic data in recent weeks. The language was music to the market's ears, and the major averages rallied strongly as a result, finishing near session highs. Volume on the NYSE and the Nasdaq picked up nicely after the statement came out, rising sharply from Monday's levels. What looked like another low-volume session ended with a bang. To me, it looked like more new money came in from the sidelines. It was an encouraging session, to say the least, not just because of the big percentage gains for the major indices but also because of bullish action beneath the surface. The financial group performed particularly well. After Tuesday's close, the Federal Reserve released its bank stress test results. Three banks failed: Ally Financial, Citigroup (C) and SunTrust (STI). JPMorgan Chase (JPM), meanwhile, raised its dividend and said it would buy back up to $12 billion of stock this year. I don't have any exposure to the financial sector in my model growth portfolio at this point, but I'm OK with that. I'm in a variety of other industry groups and sectors that are performing well. Financials, in general, don't have the explosive earnings and sales growth in recent quarter that I like to see. That said, I used to own shares of California based SVB Financial Group (SIVB), a provider of commercial banking services with customers in the technology and life sciences, venture capital and private equity and premium wine industries. Even though sales growth has been decelerating in recent quarters, the company has delivered consistent top-line growth in recent quarters -- a tall order for most regional banks. It remains one of my favorite financial names. Despite a big move in recent months, the stock is still in the early stages of a breakout from a long base that started in late July. Shares closed Tuesday at $65.69, up 5.5%, but only 3.5% above its 52-week high of $63.40. Handle areas are often seen in cup-shaped patterns like that of SIVB. A handle area forms when a stock drifts lower in light volume. This is where the last remaining sellers exit the stock. Price action like this can set the stage for a heavy-volume breakout. SVB Financial (SIVB) -- Weekly Source: StockCharts.com View Chart » View in New Window » Meanwhile, housing stocks have been on fire. If you don't feel like chasing these, consider the following two ancillary plays that turned in strong performances Tuesday. Beacon Roofing Supply (BECN) cleared a cup-with-handle pattern, rising 4.1% to $25.41. As of Tuesday's close, it was only 1.6% above its swing point of $25. Beacon Roofing (BECN) -- Daily Source: StockCharts.com View Chart » View in New Window » Volume also rolled into small-cap Ethan Allen Interiors (ETH), with shares jumping 6.7% to $27.80. The price also broke out from a solid base. As of Tuesday's close, the stock was only 3.3% above a $26.90 buy point. The company is manufacturer and retailer of home furnishings. In recent days, there's been positive analyst chatter about the housing market -- and, if it continues to show signs of life, Ethan Allen should become a main beneficiary. Ethan Allen (ETH) -- Weekly Source: StockCharts.com View Chart » View in New Window »

Ride on Housing's Coattails

If you're hesitant to chase the sector itself, here are a couple of promising ancillary plays.

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