NEW YORK ( TheStreet) -- Homebuilder stocks have set tradable ranges since the PHLX Housing Sector Index (HGX) (195.73) set a multi-year high at 198.06 on March 20 the day after I wrote, Sell Downgrades Weaken Homebuilder Foundations.
From that high to the April 18 low of 174.43, HGX fell a quick 11.9%. On that day I wrote Homebuilder Upgrades Fortify Potential Sinkholes and provided fresh buy-and-trade parameters for the homebuilders I have been covering. On Monday HGX set a new multi-year high at $198.33, up a solid 13.7% from the April 18 low.
On March 19 I viewed the construction sector as a "source of funds" then upgraded the sector to underweight on April 18 with new buy-and-trade strategies. Today it's time to book gains on these trades.
The construction sector is the most overvalued sector at 17.9% overvalued. Of the 160 stocks in the sector there are 54 rated sell and 28 rated strong sell. With 51.2% of all stocks in the sector rated sell the sector still has an underweight rating.Helping the sector has been better than expected earnings from D R Horton (DHI), KB Home (KBH), Lennar (LEN), PulteGroup (PHM) and Ryland Group (RYL) with two more reporting quarterly results this week.
Last week we learned that new home sales rose 1.5% in March to a seasonally adjusted annual rate of 417,000. The National Association of Home Builders described this report as getting half-way back to a normal housing market.