Book Profits On Strength For These 5 Homebuilder Stocks

This post was originally published on this site

Homebuilder stocks D R Horton (DHI), KB Home KBH , Lennar LEN , Pulte Group PHM and Toll Brothers TOL traded to new cycle highs on May 10. Four of the five are in correction territory at least 10% off their highs.

Pulte and Toll Brothers have held their 50-day simple moving averages (SMA). The others have not. All are above their 200-day simple moving averages. This profile favors a trading strategy to be patient and buy weakness to the 200-day SMAs.

The weekly charts are negative for DR Horton, KB Home and Lennar, but all five have their 12x3x3 weekly slow stochastic readings declining below 80.00. Remember that stochastic reading scale from 00.00 and 100.00. Readings above 80.00 are overbought and readings below 20.00 are oversold.

Share price gains between March 18, 2020 and today range from 232.7% for Pulte to 376.5% for Toll Brothers. This makes additional upside difficult to sustain.

Housing Statistics Are Stretched

The National Association of Home Builders (NAHB) Housing Market Index (HMI) peaked at an all-time high of 90 (on a scale of 00 to 100) in late 2020. The S&P CoreLogic Case-Shiller 20-City Composite for home prices was up 11.1% year-over-year in January 2021.

MORE FOR YOU

Home prices are rising faster than the Consumer Price Index due to higher lumber and concrete prices. This is also slowing the construction of new homes.

The Graph of the NAHB HMI versus Single-Family Starts

The NAHB Housing Market Index scales from zero to 100. A reading of 50 is neutral. A reading above 50 indicates a positive reading for home sales. A reading below 50 is a negative reading. The Covid-19 pandemic caused the NAHB Housing Market Index to plunge by a record 42 points to 30 in April 2020.

Homeowners living in urban areas sold their homes to move to the suburbs or more rural areas. The theme is to live in homes with an extra room as an office. Many continued to work from home as the economy recovered from the lockdown. The HMI rose to a record high of 90 in late 2020 on this temporary spike in home construction.

The S&P CoreLogic Case-Shiller 20-City Composite

Home prices continue to be in a reinflating bubble. The latest reading from the S&P CoreLogic Case-Shiller 20-City Composite is for the end of January 2021. The 20-City Composite first peaked in July 2006. The trough occurred in March 2012. The decline totaled 35.1%. The current reading for January is 79.4% above the March 2012 low.  

Here is a Scorecard for the Five Major Homebuilders

DR Horton (DHI): ($92.58 on June 4) has a negative weekly chart. The stock traded as high as $106.89 on May 10. Monthly, quarterly, semiannual and annual value levels are $89.23, $83.25, $79.56 and $65.40, respectively.

KB Home (KBH): ($46.00 on June 4) has a negative weekly chart. The stock traded as high as $52.48 on Mary 10. Monthly, quarterly, semiannual and annual value levels are $44.14, $44.22, $43.28 and $32.05, respectively.

Lennar (LEN): ($96.60 on June 4) has a negative weekly chart. The stock traded as high as $110.61 on May 10. A monthly pivot is $94.16 with quarterly, semiannual and annual value levels are $88.75, $79.64 and $69.51, respectively.

PulteGroup (PHM): ($56.95 on June 4) has a neutral weekly chart. The stock traded as high as $63.90 on May 10. Monthly, quarterly, semiannual and annual value levels are $52.21, $51.51, $47.47 and $40.13, respectively.

Toll Brothers (TOL): ($63.28 on June 4) has a neutral weekly chart. The stock traded as high as $68.88 on May 10. Monthly, quarterly, semiannual and annual value levels are $59.68, $47.05, $47.53 and $43.89, respectively.