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Trading Strategies For Homebuilder Stocks Getting Hammered

The housing market had been a strong sector of the U.S. economy. The only homebuilder that I track that’s above its 50-day simple moving average is Lennar (LEN) and this stock has a positive weekly chart. DR Horton (DHI), KB Home (KBH), PulteGroup (PHM) and Toll Brothers (TOL) have negative weekly charts. Lennar gained strength as its recent quarterly earnings report beat analysts’ estimates.

On June 15, the National Association of Home Builders reported that their Housing Market Index for June fell two points to 81. While this is a strong reading it’s the lowest measure since August 2020. It’s still an indication of strong demand in a housing market that is short on inventory. The concern is higher prices for building materials such as concrete and lumber.

Higher home prices are squeezing first time buyers despite low mortgage rates. S&P Dow Jones Indices recently reported that its 20-City Composite of home prices rose 14.9% year-over-year in April.  

Here’s A Scorecard for Five Major Homebuilders

Let’s look at the weekly charts and key trading levels.

DR Horton (DHI)

The weekly chart for DR Horton is negative with the stock below its five-week modified moving average of $91.51. It’s well above its 200-week simple moving average or reversion to the mean at $54.43. The 12x3x3 weekly slow stochastic reading is declining at 28.12.     

Trading Strategy: Buy weakness to its weekly, semiannual and annual value levels at $87.25, $82.70 and $65.40, respectively. Its quarterly pivot is $92.27. Sell strength to its monthly risky level at $102.20.

KB Home (KBH)

The weekly chart for KB Home is negative with the stock below its five-week modified moving average of $42.99. The stock is above its 200-week simple moving average of $30.68, which I consider its reversion to the mean. The 12x3x3 weekly slow stochastic reading is declining at 18.73, so it’s now oversold.       

Trading Strategy: Buy weakness to its semiannual and annual value levels at $39.13 and $32.05. Sell strength to its quarterly and monthly risky levels at $44.70 and $50.81.

Lennar (LEN)

The weekly chart for Lennar is positive with the stock above its five-week modified moving average of $98.63. The stock is above its 200-week simple moving average of reversion to the mean at $61.93. The 12x3x3 weekly slow stochastic reading is rising at 41.78.    

Trading Strategy: Buy weakness to its semiannual and annual value levels at $79.96 and $69.51. Its quarterly pivot is $100.27. Sell strength to its monthly risky level at $112.16.

PulteGroup (PHM)

The weekly chart for PulteGroup is negative with the stock below its five-week modified moving average of $54.80. The stock is well above its 200-week simple moving average or reversion to the mean at $35.66. The 12x3x3 weekly slow stochastic reading is declining at 33.45.  

Trading Strategy: Buy weakness to its semiannual and annual value levels at $52.07 and $40.13. Its quarterly pivot is $53.42. Sell strength to its monthly risky level at $60.10.

Toll Brothers (TOL)

The weekly chart for Toll Brothers is negative with the stock below its five-week modified moving average of $58.97. The stock is well above its 200-week simple moving average or reversion to the mean at $41.31. The 12x3x3 weekly slow stochastic reading is declining at 28.38.     

Trading Strategy: Buy weakness to its quarterly, semiannual and annual value levels at $51.58, $46.21 and $43.89, respectively. Sell strength to its monthly risky level at $67.86.

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