D.R. Horton a Home for Bears
The homebuilders have been under assault by the bears for almost two years.
But it takes a lot of time to wring all the hope out of a multiyear bull market that has enjoyed such widespread participation.
After beginning their decline in mid-2005, many of the homebuilding stocks caught some buying interest last summer.
As I understood it, a lot of the value-driven money managers were seeing some compelling value in this sector, with many stocks trading at book value.The sector had been moving inversely to bond yields. As the yield on the 10-year note (TNX) rose, the homebuilders fell. But after peaking at around 5.25 last summer, the TNX fell lower and the homebuilders started rallying. This symmetry indicated that the market was seeing the homebuilders as an interest rate trade. That's the obvious dynamic -- rising rates make money more expensive. That makes real estate more difficult to finance (and to refinance). But it looks like the market is finally seeing that the problem in the homebuilding sector runs deeper than interest rates. You'd think that the recent peak in the 10-year would once again provide some relief for the homebuilders. But that's just not the case, as they continue to fall. One particularly onerous chart that's not too late to pounce on is D.R. Horton (DHI). Let's take a look at the monthly chart.
| D.R. Horton (DHI) -- Monthly
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