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Housing-Related Stocks Hold Up Despite Weak Data

NEW YORK (TheStreet) -- The National Association on Home Builders Housing Market Index slumped by a record 10 points to 46 in February back below the neutral reading of 50, partially due to bad weather.

Since the end of January only four of 12 homebuilder stocks in today's post have gains led by Lennar (LEN - Get Report) up 4.2% followed by Toll Brothers (TOL) up 3.9%. The eight others declined between 1.8% and 4.5% since Jan. 31.

The important component of housing starts is single-family starts which plunged 15.9% in January to an annual rate of 573,000 below the important 600,000 threshold. The December rate was 667,000 and the November level was 727,000 so the trend suggests that the market for single-family homes has stalled at 60% of potential which is the 1,000,000 to 1,200,000 unit range. 

As the above chart shows the Housing Market index stalled just below the 60 threshold with single-family starts is back below the 600,000 threshold.

I have been tracking the weekly chart for the PHLX Housing Sector Index (^HGX) which has 19 components including 11 of the 12 homebuilders I have been profiling. Beazer Homes (BZH) is not in this housing index. The other eight components provide products and services that support the housing market, and all have gains since the end of January.

The two best performers are Owens Corning (OC - Get Report) and the provider of insulation, roofing, siding, stone and glass has a gain of 17.9% since the end of January. In second place is Vulcan Materials (VMC) and the producer of asphalt mix, concrete and cement has a month-to-date gain of 6.5%.

Courtesy of MetaStock / XENITH

The chart above shows the Fibonacci retracements of the decline in the housing sector index from its mid-2005 high to the March 2009 low. Today the index (207.70) is above the 61.8% retracement level at 202.05 not on the strength of the 11 homebuilders but on the strength of the eight in the housing market in supporting roles.

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