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Is It Time to Sell Homebuilder Stocks?

On March 10, I wrote, Five Years from the Bottom: Keep an Eye on Housing and Banks and explained how the homebuilders provided stock market warnings as early as mid-2005. Without a vibrant housing market, it's hard to be bullish on stocks or the U.S. economy as home construction is a driver of job growth on Main Street.

I question the notion that owning a home has become more affordable. I live in Tampa, and in this area of the country, only 65% of households own their homes, the lowest since the housing bubble popped. An article in last Sunday's Tampa Bay Times indicated that the inflation-adjusted median family income fell 8.4% from the end of 2007 to the end of 2012. This is not the favorable financial environment for increased demand for home buying.

I have been tracking the weekly chart for the housing sector index which has 19 components including 11 of the 12 homebuilders that I track. Beazer Homes (BZH) is not in this housing index. The other eight components provide products and services that support the housing market, and those companies have been outperforming the homebuilders.

Courtesy of MetaStock / XENITH

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The weekly chart for the housing index shows the Fibonacci retracements of the decline from its mid-2005 high to the March 2009 low. On Tuesday, this index closed at 203.55, down 2% from its Feb. 21 close at 207.70, just above the 61.8% retracement level at 202.05. The relative strength of the non-homebuilders components has offset the poorer performances among the 11 homebuilders in this index.

The weekly chart profile shifts to negative with a close on Friday below its five-week modified moving average at 203.72 as the 12x3x3 weekly slow stochastic is projected to be declining at 77.75 below the overbought reading of 80.00. The downside risk is to the 200-week simple moving average at 138.99.

The message from the Federal Reserve's statement later today and comments from Fed Chief Janet Yellen at her first press conference this afternoon should influence the volatility among these stocks.

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