Faltering in the Final Hour

A day of minor movements for the major averages soured noticeably in the final hour of trading.

"Another day, another fake-out," quipped one market watcher as a late-session rally attempt failed woefully. "Nice disaster in the 'rally hour.' "

Indeed, the last hour proved unkind for the bulls, leaving the

Dow Jones Industrial Average

down 0.5%, the

S&P 500

off 0.6% and the

Nasdaq Composite

lower by 1.6%.

Most disappointing for the bulls -- and damaging for the Comp -- was the inability of chip stocks to capitalize on a stronger-than-expected semiconductor equipment

book-to-bill report and some optimistic comments from

STMicroelectronics

(STM) - Get Report

. STMicro rose 1.6%, but the Philadelphia Stock Exchange Semiconductor index fell 3.1% to 555.20 after trading as high as 574.82.

Similarly, telecom stocks were unable to find any bounce from yesterday's thrashing despite some hopeful comments from

AT&T Wireless

(AWE)

. AT&T Wireless rose 10.4%, but the Nasdaq Telecommunications index fell 2.8%.

WorldCom

(WCOM)

fell another 15% and was by far the most actively traded stock, with nearly 240 million shares changing hands.

Major averages were further weakened by losses in

ExxonMobil

(XOM) - Get Report

and

DuPont

(DD) - Get Report

, after each reported weaker-than-expected results, as well as by losses in

Microsoft

(MSFT) - Get Report

.

Whether news after the bell -- most notably better-than-expected results at

Amazon.com

(AMZN) - Get Report

-- can buoy traders' spirits remains to be seen. But clearly, the onus is on the bulls to show they can sustain any forward momentum.

If You Build It, They Will Come

In an otherwise lackluster session, homebuilding stocks were standout performers amid an avalanche of good news.

Following the lead set by

D.R. Horton

(DHI) - Get Report

yesterday, both

Pulte Homes

(PHM) - Get Report

and

Centex

(CTX)

reported much better-than-expected earnings today.

Pulte posted first-quarter earnings from continuing operations of $1.12 a share, vs. 91 cents a year ago and consensus estimates of 92 cents a share. The firm's domestic homebuilding revenue rose 63% from year-ago levels to $1.3 billion. Pulte forecast second-quarter earnings of $1.35 to $1.45 per share vs. the current consensus of $1.45. But the firm said it remained "comfortable" with its previous guidance for the full year, and its shares rose 4.4% today.

Centex reported fiscal fourth-quarter earnings of $1.85 a share, up from $1.73 a year ago and beyond the consensus estimate of $1.80. The firm's revenue rose 12.8% from year-ago levels to $2.3 billion. Centex raised expectations for earnings in fiscal 2003 and 2004, and its shares gained 6.1% today.

Elsewhere, D.R. Horton rose 3.6% after an A.G. Edwards upgrade, which followed the company's blowout earnings release yesterday. The company posted first-quarter earnings of 64 cents a share vs. 45 cents a year ago and consensus estimates for 52 cents; its year-over-year revenue growth approached 77%.

Toll Brothers

(TOL) - Get Report

climbed 4.1% to a 52-week high of $29.05 following an upgrade by Credit Suisse First Boston to buy from hold.

Finally,

Beazer Homes

(BZH) - Get Report

rose 6.1% after announcing the final terms of its payout to shareholders of

Crossman Communities

, which Beazer recently acquired.

The S&P Homebuilding index rose 4.6%.

The session emboldened the group's supporters, including many who've been engaging in a running email battle with me since I first expressed caution on the group earlier this year. What these critics have missed is that I never wrote that homebuilders didn't have solid fundamentals or lacked momentum. I merely wondered if they were approaching the end of a stellar cycle, as I expect rates to rise going forward. Also, I worried about claims that the

old metrics didn't apply and that the group was now immune to economic cycles.

A wise man once said prudent investors "sell at the sound of trumpets" and "buy at the sound of cannons." (Or something to that effect.)

That man, Seabreeze Partners and

RealMoney Pro

contributor Doug Kass, issued an update on the

RealMoney Pro.com

site today, as follows: "I remain of the view that the homebuilders will be excellent long-term shorts, but just because they are trading back up from the March 21 lows doesn't mean we should automatically reload on the shorts."

Kass' main point was that the recent deceleration in the economy and indications the

Fed

is unlikely to tighten anytime soon gives the group room to maneuver. Still, Seabreeze maintains short positions in Centex, Pulte and Toll Brothers.

In a follow-up conversation today, Kass noted the heavy insider selling at all three firms, including a near-85,000 share sale by Pulte CEO Mark O'Brien, one of seven insiders at the firm to sell since early February. Last month, David Quinn, a director at Centex, sold 50,000 shares. Among others, Toll Brothers director Bruce Toll sold 250,00 shares in late December and another 37,000 shares in January.

"Management is consistently selling in all three

homebuilders that I am short," Kass said. "At the tail end of the day, I put out some more stock short."

The fund manager took umbrage with Centex's proclamations about foreseeing superb results for fiscal 2003 and 2004.

"We all know

that is impossible to see now," he said. "Homebuilding is the most cyclical business extant. There is a whole bunch of important dependent variables -- including the health of the economy, the labor force, house prices, interest rates, and the propensity for intermediaries to lend." (Speaking of the latter, Greenspan

issued some cautious comments on

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

last night, although Fannie rose 0.5% today and Freddie dipped just 0.1%.)

Finally, for all the hoopla, Toll Brothers is the only major homebuilder to have fully recouped the losses suffered after the group's recent peak in early March. Should others follow Toll into new 52-week-high territory, that would obviously be a bullish sign. Conversely, failure to do so could leave many names technically vulnerable at a time when investors may be looking to raise cash to offset losses elsewhere.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.