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Homebuilders' Downgrades Continue

Stocks in this article: GOOG AAPL C BZH DHI KBH PHM RYL SPF TOL

Ryland Group (RYL) ($48.92 vs. $47.76 on May 10): Has been downgraded to strong sell from sell and set a new multi-year high at $50.05 on May 14.

Standard & Pacific (SPF) ($9.24 vs. $9.44 on May 10): Has been downgraded to strong sell from sell and set a new multi-year high at $9.97 on May 14.

Toll Brothers (TOL) ($36.13 vs. $36.34 on May 10): Has been downgraded to sell from hold, but remains below its 2013 high at $38.36 set on Jan. 29. Toll Brothers reports quarterly results next Wednesday premarket and 7 cents a share is expected.

The construction sector is 19.9% overvalued and among the 159 stocks in the sector 69.2% are rated sell or strong sell giving the sector an underweight rating.

My Asset Allocation Suggestion

Investors should have 50% in cash, and allocations to U.S. equities should focus on the buy rated components of the Dow Jones Industrial Average, Dow utilities, and the buy rated brand names in the retail-wholesale sector. On Monday and Tuesday I will be profiling 18 buy rated stocks in the retail-wholesale sector pre-earnings.

Key Numbers for the Major Equity Averages

As long as weekly closes are above my semiannual pivot at 965.51 on the Russell 2000 the upside is to my semiannual risky level at 3583 on the Nasdaq. My semiannual value level is 14,323 on the Dow Jones Industrial Average with semiannual pivots at 1566.9 on the S&P 500 and 5955 on the Dow transportation average. I still project risk to my annual value levels at 12,696 Dow industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow transports and 809.54 Russell 2000 at some point in 2013.


To confirm a market top we need to see negative weekly chart profiles. This would have all five major averages showing their 12x3x3 weekly slow stochastic readings declining below 80.00 on a scale of 00.00 to 100.00 with weekly closes below the five-week modified moving averages today at; 14,803 Dow Industrials, 1595.0 S&P 500, 3330 Nasdaq, 6217 Dow Transports and 950.68 Russell 2000.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.
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