Lennar (LEN) and PulteGroup (PHM) Charts Show That the Housing Market Is Shaky

Many economists and housing experts remain bullish on the market, but the charts of some housing companies are turning lower.
By Bruce Kamich ,

NEW YORK (TheStreet) -- Many economists and housing experts remain bullish on the market, but the charts of some of the housing companies are turning lower.

This first chart of Lennar (LEN) - Get Report , above, shows trading largely confined to a $45 to $56 range for much of the last 12 months. The On-Balance-Volume (OBV) line is flat to declining, and the slope of the 50-day simple moving average is negative. A move below $48 for LEN will make the chart look more bearish and remaining longs should be sold.

This chart of LEN, above, shows a four-year rally from the late 2011 lows. Prices have had a significant markup and are now trading on top of the 40-week moving average. The Moving Average Convergence Divergence (MACD) oscillator is bearish, and the overall volume of trading in LEN has been declining the past two years. Rising prices and declining volume suggest an erosion of confidence in the rally.

PulteGroup (PHM) - Get Report has been moving irregularly lower since February. See chart above. The OBV line has rolled over with prices the last four months. The MACD oscillator is negative and below the zero line. Prices of PHM are below the declining 50-day moving average, which paints a weakening picture.

In this longer-term view of PHM, we can see a potential three-year top formation. A break below $18 weakens the picture, and a close below $15 could open the way for a deeper decline.

TheStreet Ratings team rates LENNAR CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

We rate LENNAR CORP (LEN) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.2%. Since the same quarter one year prior, revenues rose by 23.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • LENNAR CORP has improved earnings per share by 23.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, LENNAR CORP increased its bottom line by earning $2.81 versus $2.14 in the prior year. This year, the market expects an improvement in earnings ($3.37 versus $2.81).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Household Durables industry average. The net income increased by 25.6% when compared to the same quarter one year prior, rising from $177.76 million to $223.31 million.
  • Net operating cash flow has increased to -$93.88 million or 46.90% when compared to the same quarter last year. In addition, LENNAR CORP has also vastly surpassed the industry average cash flow growth rate of -83.25%.
  • You can view the full analysis from the report here: LEN

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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