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Is It Time to Sell Homebuilder Stocks?

Stocks in this article: BZH DHI HOV KBH LEN MDC MHO MTH PHM RYL SPF TOL AWI FNF LII MAS OC RDN VMC WY

NEW YORK (TheStreet) -- Homebuilder stocks have traded lower over the last four weeks for 11 of the 12 homebuilders profiled today.

These stocks will likely rally today after KB Home (KBH - Get Report) reported earlier today fiscal first-quarter earnings of 12 cents a share, topping analysts' estimates by 4 cents.

Shares of KB Home were recently trading at $19.33, up 9%. The weekly chart for this homebuilder will be negative unless Friday's close is above its five-week modified moving average at $18.40, which means that the stock needs to sustain its gains.

In my opinion, strength in the homebuilder stocks is an opportunity to book profits at the risky levels shown in today's 'Crunching the Numbers" table for the 19 components of the PHLX Housing Sector Index (^HGX). My reason is that recent data for market for new homes show that this segment of the housing market has stalled.

The National Association on Home Builders Housing Market Index picked up a point to 47 in March after plunging by a record 10 points to 46 in February. The index remains below the neutral reading of 50. The NAHB continues to blame bad weather, the difficulty in finding lots and labor, and the rising cost of materials.

The NAHB tracks its housing index vs. single-family starts, which came in at an annual rate of 583,000 in February and has now been below the important 600,000 threshold for two consecutive months, and well below the potential of 1 million to 1.2 million unit range. 

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