Homebuilders Are an Intriguing Option Here

So tempting to down sell the homebuilders. They failed just where one of our excellent technicians, Helene Meisler, told me they would -- 150 on the Housing Index (HGX). They just couldn't get through, and the move up at the end was on light volume.

It would be so easy to say that we should just put these on the sell block as they have all moved too far too fast, and that there was nothing really great in that Lennar (LEN - commentary - Cramer's Take) number, just more gloom.

But there is a macro story building here: These monster homebuilders just aren't putting up a lot of homes anymore, and they are cutting them -- sometimes as much as 20%. It is a truly amazing reduction and it is making it so that the excess inventory will be worked off pretty much no matter what.

I have watched Toll Brothers (TOL - commentary - Cramer's Take) spring back to life here even though there is really nothing special there and even though there will no doubt be new problems if employment keeps struggling. That said, the balance sheet is clean, the short story is lacking and the only thing it has against it is that many people are recommending it.

But will you be able to get out and then get back in? Ryland (RYL - commentary - Cramer's Take) is another stock that has just jumped from $19 to $31. It would seem that it could retreat back to $25 without a problem. However, there is nothing new really BAD happening at Ryland, and if something good does happen, then you are not going to be able to get Ryland in the 20s for a long time.

Some things didn't happen that I did want -- bankruptcies, for example. We have gotten through this period with such massive sales and writedowns by the likes of KB Home (KBH - commentary - Cramer's Take) and Centex (CTX - commentary - Cramer's Take) and Horton (DHI - commentary - Cramer's Take) and Pulte (PHM - commentary - Cramer's Take) that I believe their balance sheets are actually in pretty good shape. One reason this worked was that the banks showed tremendous forbearance with these players, stretching out the revolvers and giving them breathing room. No one wants to own houses if you are in the banking business.

We just don't have enough negative anymore with refinancing occurring and with so many homeowners -- 53% -- in the country having no mortgages at all. They aren't going to walk away from their places.

The mortgage issue will soon be California, Florida and the auto region and not much else.

Too late to sell the homebuilders, interesting opportunity to buy them.

Random musings: The bottomless Schering-Plough (SGP - commentary - Cramer's Take) is so painful, but there was a 5-million-share seller, no doubt anxious to clear the decks for one of the biggest losers of the quarter. Meanwhile we have scrips turning up for Vytorin and earnings numbers going up. I believe that this is my favorite stock now that Altria (MO - commentary - Cramer's Take) is splitting into two.

At the time of publication, Cramer was long Schering-Plough and Altria.

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