Homebuilders KB Home (KBH - Get Report) and Lennar Corp (LEN - Get Report) report fourth-quarter earnings on Wednesday rebounding from lows set in November and December, respectively.

We know that housing data has been weak in recent months, so forward guidance will outweigh the financial data. Despite weakening homebuilder sentiment and sliding single-family starts, homebuilder stocks are stabilizing.

On Dec. 17, the National Association of Home Builders announced that their Housing Market Index for December fell by four points to 56, which was the lowest reading since May 2015. The buyer traffic component fell to 43 well below the neutral 50. Then on Dec. 19, the Census Bureau reported that single-family housing starts decreased to 824,000 in November down from 865,000 in October.

In December, affordability improved somewhat as mortgage rates declined as U.S. treasury yields fell. In addition, the year-over-year rise in home prices declined in October, which is the latest month for the S&P CoreLogic Case-Shiller 20-City Composite. This index showed a rise of 5% year over year down from 5.2% in September.

Daily and weekly charts for KB Home and Lennar have been showing improving trends since setting fourth-quarter lows.

KB Home closed Friday at $20.66 up 8.2% already in 2019 and is in bull market territory, up 22.8% since setting its 2018 low of $16.82 on Nov. 15. Longer term, the stock is in bear market territory down 46.8% from its Jan. 11, 2018 high of $38.80. The stock is also 75.8% below its July 2005 peak of $85.45. Analysts expect KBH to earn 93 cents to 97 cents a share when they report after the close on Jan. 9. The stock is cheap with a P/E ratio of 7.71 according to Macrotrends.

Lennar closed Friday at $41.21 up 5.3% in 2019 and is up 10.5% since setting its 2018 low of $37.29 on Dec. 26. Longer-term the stock is in bear market territory down 42.8% from its Jan. 18, 2018 high of $72.07. The stock's high in 2018 was above its July 2005 peak of $67.68. Analysts expect LEN to earn $1.93 to $1.96 a share when they report before the open on Jan. 9. The stock is cheap with a P/E ratio of 7.66, according to Macrotrends.

The daily chart for KB Home

 

Courtesy of MetaStock Xenith

The daily chart for KB Home shows that the stock has been below a "death cross" since May 18 when the 50-day simple moving average fell below the 200-day simple moving average. A "death cross" indicates that lower prices lie ahead. The stock is above its 50-day SMA at $20.10 and below its 200-day SMA at $24.28. The horizontal lines are my monthly value level at $19.09 and my annual, semiannual and quarterly risky levels at $21.10, $23.74 and $32.37, respectively.

The weekly chart for KB Home

 

Courtesy of MetaStock Xenith

The weekly chart for KB Home is positive with the stock above its five-week modified moving average at $20.22. The stock is also above its 200-week SMA or "reversion to the mean" at $19.55. The 12x3x3 weekly slow stochastic reading rose to 36.63 last week up from 31.43 on Dec.28. A year ago, the stochastic reading was 94.13 above 90.00 as an "inflating parabolic bubble". The bubble popped, and the stock remains in bear market territory 46.8% below its 2018 high of $38.80 set on Jan. 11.

Trading Strategy: Buy KB Home with the stock between my monthly value level at $19.09 and my annual risky level at $21.10. This range includes the "reversion to the mean" at $19.55 and the five-week MMA at $20.22. Reduce holdings on strength to my semiannual risky level at $23.74 and its 200-day SMA at $24.27.

The daily chart for Lennar

 

Courtesy of MetaStock Xenith

The daily chart for Lennar shows that the stock has been below a "death cross" since May 8 when the 50-day simple moving average fell below the 200-day simple moving average. A "death cross" indicates that lower prices lie ahead. The stock is just below its 50-day SMA at $41.41 and well below its 200-day SMA at $49.63. The horizontal lines are my monthly value level at $40.19 and my semiannual, quarterly and annual risky levels at $52.00, $58.76 and $64.23, respectively.

The weekly chart for Lennar

 

Courtesy of MetaStock Xenith

The weekly chart for Lennar becomes positive given a close this week above its five-week modified moving average of $41.346. The stock is below its 200-week SMA or "reversion to the mean" at $49.33 last tested during the week of Sept. 28. The 12x3x3 weekly slow stochastic reading rose to 22.95 last week up from 20.20 on Dec. 28. A year ago, the stochastic reading was above 90.00 at 94.05 as an "inflating parabolic bubble". The bubble popped, and the stock remains in bear market territory 42.8% below the high.

Trading Strategy: Buy Lennar between my monthly value level at $40.19 and its 50-day SMA at $41.42 and reduce holdings on strength to the 200-day SMA at $49.63 and my semiannual risky level at $52.00.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.