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Home Builders Hammered by Housing Data

Stocks in this article: HGX TOL DHI HOV KBH LEN PHM RYL SPF

My benchmark for the home builder industry is the PHLX Housing Sector Index (HGX), which plunged 5.5% on Wednesday to 179.51. The daily chart for HGX had been showing a topping out pattern since the end of January despite setting a multi-year high at 194.06 on Feb 13. HGX broke below its 21-day simple moving average (SMA) at 188.71 and closed Wednesday just below its 50-day SMA at 180.11 with the 200-day SMA at 153.60, which lines up with my semiannual value level at 152.56.



Chart Courtesy of Thomson / Reuters

On Jan. 17, I wrote Overvalued Home Builders Face Earnings Hurdle and provided my "buy and trade" strategies pre-earnings for the eight home builders I have been covering.

On Jan. 28, I wrote Will Homebuilders Q4 Support Additional Share Price Strength? In this post I honed in on earnings from four home builders and two other stocks that provide services to home building.

On Feb. 4, I wrote Book Profits in Overvalued Market , and profiled four home builders and six other stocks related to home building and the construction sector. My strategy presented in this post is to use a "buy and trade" strategy to book profits on strength, and raise cash while doing so.

The construction sector was the most overvalued sector, by 26.9% yesterday, but today is 23.3% overvalued, falling behind consumer staples at 24.1% overvalued. At www.ValuEngine.com, we still show that 15 of 16 sectors are overvalued, 11 by double-digit percentages.

D.R. Horton (DHI) ($21.93 vs. $23.35 on Feb. 4) set a multi-year high at $24.66 on Feb. 12. With this strength, investors had the opportunity to book profits and raise cash at my monthly risky level at $24.10. The daily chart is negative and the weekly chart shifts to negative on a close this week below the five-week modified moving average (MMA) at $21.96. My semiannual value level is $20.50 with the monthly risky level at $21.92.

Hovnanian (HOV) ($5.29) is well below its Jan. 2 high at $7.43. The daily chart is negative and the weekly chart is negative given a close this week below the five-week MMA at $5.74. My quarterly value level lags at $2.89 with a weekly pivot at $5.31 and semiannual risky level at $6.00.

KB Home (KBH) ($18.03) set a multi-year high at $20.04 on Feb. 12. The daily chart is negative and the weekly chart shifts to negative given a close this week below the five-week MMA at $17.63. My semiannual value level lags at $10.77, with a weekly pivot at $20.13 and monthly risky level at $21.35.

Lennar (LEN) ($37.18 vs. $41.07 on Feb. 4) set a multi-year high at $43.33 on Jan. 28. The daily chart is negative and the weekly chart stays negative on a close this week below the five-week MMA at $39.59. My semiannual value level is $36.03 with a weekly risky level at $42.74.

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