Trade the Builders' Rising Volatility

Tuesday morning's earnings report from Toll Brothers(TOL Quote) prompted me to review my profiles of the homebuilders.

On June 17, I wrote that the homebuilders were the hottest momentum trade in the market and warned that the monthly chart profiles had become parabolic, a precursor to all bubbles. On Aug. 26, I wrote that shares had peaked in July, and I shared my observation that St. Joe(JOE Quote), which is a real estate operating company, not a homebuilder, was leading the homebuilders both up and down. On Oct. 11, I argued that the homebuilders had become value investments. I maintained that St. Joe was the key to stability and that it was holding my semiannual pivot at $59.91.

On Oct. 11, all of the homebuilders I profiled were below their 200-day simple moving averages; this was the risk my model showed in earlier articles. Now the stocks are straddling their 200-day SMAs. On Monday, St. Joe, D.R. Horton (DHI Quote), Lennar(LEN Quote) and Toll Brothers were below their 200-day SMAs. ...