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Homebuilder Volatility Provides Trading Opportunities

NEW YORK (TheStreet) -- The volatile price performances of the homebuilder stocks in 2013 have provided trading opportunities as an important segment of our economy attempts to return to leadership.

On Sept. 9 I wrote, Housing Bubble Is Re-inflating and included the fact that at the May 20 high for the PHLX Housing Sector Index (170.76) was up 22.6%. At that time the housing index was the best performing industry of those that I frequently profile. At the year to date low on Aug. 15, the housing index was down 4.2% on the year. At Wednesday's close the housing index has re-inflated to a year to date gain of 6.9%.

Chart Courtesy of Thomson/Reuters

The daily chart for the housing index shows declining momentum with the index trading around its 200-day SMA at 183.83 with the 21-day and 50-day SMAs as supports at 176.13 and 176.00. The index is between my semiannual and quarterly pivots at 180.52 and 185.61.

When the housing index was at its May 20 high most of the homebuilders had triple-digit gains over the last 12 months. Today only three have double-digit gains and five now show losses over the last 12 months.

In my Sept. 9 post I also showed that seven of 11 had hold ratings with two having sell ratings and two having strong sell ratings. All were trading below their 200-day SMAs. In addition, there was some upside potential given housing data suggesting a re-inflating bubble. Back at the May highs all were well above their 200-day SMAs, which indicated risk of reversion to the mean for all 11.

Between Sept. 6 and today's post all 11 homebuilders have rebounded with six up between a tradable 10.8% and 16.8% setting up profit-taking for buy-and-trade investors who took advantage of these trading opportunities.

Warnings include the fact that all seven of the homebuilders that had hold ratings on Sept. 9 now have sell ratings. In addition, nine of 11 are still below their 200-day SMAs and these levels may prove to be resistances.

Recent housing data has been reasonable but in my judgment not strong enough to be a driver of economic growth.

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