Friday, April 4, 2008

Are the Home Builders Constructing a Comeback?

CNBC this morning gave a quick report on the current rebound in the homebuilding stocks. Since I 've been busy getting my taxes together (argh!), I thought I'd take the easy way out today and look at this sector in more detail. The credit crisis took a wrecking ball to these stocks, with many of them losing 70-90% of their value in a little over a year. That's ugly. But recent Fed easing moves and with Congress getting into the act, the crisis looks like it's starting to abate. This could bode well not only for home buyers but home builders as well.

So, what are the charts of the home builders telling us? Naturally, one would expect major similarities among them, and there are. Most of them formed double bottoms in November and January. From their January lows, the stocks quickly sprung back until the beginning of February when they began oscillating in a trading range. The chart below of Standard Pacific (SPF) typifies this behavior.

In just the past few days, the following stocks have broken short-term resistance levels: SPF, Meritage (MTH), Beazer (BZH), M/I Homes (MHO), and Lennar (LEN). Those that have just broken short-term resistance and are approaching their next resistance levels are Ryland (RYL), Hovnanian (HOV), Toll Brothers (TOL), and Champion (CHB). Those nearing or butting up against resistance are Brookfield Homes (BHS), D R Horton (DHI), KB Home (KBH), Pulte Home (PHM), and Centex (CTX). If you're itching to get into these, I'd go with the those in the first or second group above. These stocks in general have been volatile and I particularly don't like the action in CHB. It's subject to extreme oscillations which is why it wouldn't be one of my top choices. Note that some of these stocks do pay dividends, with LEN, BHS, DHI, and KBH having dividend yields between 2.3-3.7%.

Hopefully these stocks are out of the basement and from here they can build us some profits!

Update on yesterday's candlestick play:
XRIT's hammer formation is invalidated as the stock is trading below yesterday's close. Now you can see why it's so important to have the follow-through day.

No comments: