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Homebuilders Are Risky Bets Despite Positive Data

NEW YORK ( TheStreet) -- Home prices have been rising, builder confidence has been improving, but the rise in single family housing starts slowed in October. At 10 a.m. we get the New Home Sales data for October, which is projected to have slipped somewhat.

In my last story covering the home builder stocks on Oct. 25 I wrote Homebuilders Are Overvalued and Overbought , and the overvalued condition still holds today. At we show that the construction sector is 13.7% overvalued with the building -- resident/commercial industry -- 29.1% overvalued. Even so, six of the eight stocks I am profiling today are rated buy, one is rated strong buy and one is rated hold. On Oct. 25 I projected that these stocks may have rallied too far too fast, and I stand by that call.

The home builder stocks have been moving sideways since the middle of September as shown in the weekly chart for the PHLX Housing Sector Index (HGX). Four of the eight stocks I profiled on Oct. 25 have declined since, two moved sideways and two moved higher.

The weekly chart for HGX (165.04) shows declining momentum with the index above its five-week modified moving average at 161.44, which is a neutral weekly chart profile. My monthly pivot is 163.92 with a weekly risky level at 167.62. My quarterly value level lags at 145.84.

Chart Courtesy of Thomson/Reuters

In a speech on Nov. 20 Fed Chief Bernanke described the housing market as showing some clear signs of improvement on rising sales, higher prices and increased construction. He described these developments as encouraging saying that this segment of our economy will be a source of economic growth and new jobs over the next couple of years.

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