Homebuilders Set Post-Election Highs, Materials Stocks Lag

Shares of homebuilders, D.R. Horton (DHI) , KB Home (KBH) , Lennar (LEN) , Pulte Group (PHM) and Toll Brothers (TOL) extended bull-market gains in April, setting post-election highs this week.

This strength provides an opportunity to reduce holdings as the National Association of Home Builders Housing Market Index slipped three points to 68 in April after surging six points to 71 in March. In addition, single-family housing starts, the NAHB benchmark, declined 6.2% in March to an annual pace of 821,000 units.

A longer-term concern is that the housing market index peaked at 72 in June 2005 and the PHLX Housing Index and the homebuilder stocks set their all-time intraday high one month later, in July 2005. The housing index set its post-election high of 271.77 on Wednesday and would have to rally another 8% to reach its all-time high of 293.66 set in July 2005.

The housing index also includes companies that provide construction and materials products. These components Armstrong World (AWI) , Lennox International (LII) , Masco (MAS) , Owens Corning (OC) and Vulcan Materials (VMC) have lagged in April. This is a sign that the overall housing market, which includes new home construction, home resales and home improvement projects, may be slowing. Also, the delay in infrastructure programs across the country will make upcoming earnings reports in these names extremely important.

Armstrong World provides ceilings and cabinets. Lennox provides air conditioning and heating systems. Masco provides home improvement and building products. Owens Corning makes insulation, roofing and siding products. Vulcan Materials makes the ingredients for concrete and cement.

Monthly Graph of the NAHB HMI vs Single-Family Housing Starts
Monthly Graph of the NAHB HMI vs Single-Family Housing Starts

Courtesy of the National Association of Home Builders

The NAHB HMI at 68 in April is shown in blue with the scale at the left side of the graph. Single-family housing starts is shown in red and scaled on the right side of the graph. Note that this is the 872,000 units reading for February. Note that the HMI is leading the rise in starts by a significant margin, which is a warning. When the index was 72 in June 2005, single-family starts were approaching 1.8 million units.

Housing Stocks Scorecard
Housing Stocks Scorecard

Courtesy of Global Market Consultants

Here's a scorecard for the housing index, five major homebuilders and five housing-related stocks followed by their weekly technical charts and key trading levels.

Note how all five homebuilders are solidly in bull-market territory with gains between 27.2% and 46.1% since their post-election lows. Only two of the housing-related stocks are in bull-market territory since the election and one, Vulcan Materials, is in correction territory 15% below its post-election high. In fact, this stock set a lower low since the election on March 22.

Note that D.R. Horton reports earnings before the opening bell this morning.

D.R. Horton (DHI)
D.R. Horton (DHI)

Courtesy of MetaStock Xenith

D.R. Horton ($33.95 on April 19) is in bull market territory 27.2% above its Nov. 9 low of $26.69, and set its multiyear intraday high of $34.54 on April 19. The stock is still well below its July 2005 peak of $42.82.

The weekly chart is positive but overbought with the stock above its key weekly moving average of $32.91, and well above its 200-week simple moving average of $26.32. Weekly momentum is projected to rise to 88.46 this week, rising above the overbought threshold of 80.00. Buy weakness to my monthly value level of $28.16. I show a semiannual pivot of $33.33. Sell strength to my annual risky level of $35.04.

KB Home (KBH)
KB Home (KBH)

Courtesy of MetaStock Xenith

KB Home ($20.70 on April 19) is in bull-market territory, 46.1% above its Nov. 8 low of $14.17, and set its multiyear intraday high of $20.91 on April 19. The stock is significantly below its July 2005 peak of $85.45.

The weekly chart is positive but overbought, with the stock above its key weekly moving average of $19.31 and above its 200-week simple moving average of $15.80. Weekly momentum is projected to rise to 92.30, well above the overbought threshold of 80.00. Buy weakness to my semiannual and annual value levels of $17.29 and $14.93, respectively. Sell strength to my weekly and semiannual risky levels of $21.66 and $23.29, respectively.

Lennar (LEN)
Lennar (LEN)

Courtesy of MetaStock Xenith

Lennar ($52.60 on April 19) is in bull-market territory 32.6% above its Nov. 9 low of $39.68, and set its multiyear intraday high of $53.79 on March 10. The stock is well below its July 2005 peak of $68.86.

The weekly chart is positive but overbought, with the stock above its key weekly moving average of $50.68, and above its 200-week simple moving average of $43.81. Weekly momentum is projected to slip to 79.21 this week, below the overbought threshold of 80.00, which would result in a downgrade to neutral. Buy weakness to my semiannual value level of $48.95. Sell strength to my annual risky level of $59.99.

PulteGroup (PHM)
PulteGroup (PHM)

Courtesy of MetaStock Xenith

PulteGroup ($24.19 on April 19) is in bull market territory 36.7% above its Nov. 9 low of $17.69, and set its multiyear intraday high of $24.36 on April 19. The stock is well below its July 2005 peak of $48.22.

The weekly chart is positive but overbought with the stock above its key weekly moving average of $23.14 and above its 200-week simple moving average of $19.43. Weekly momentum is projected to rise to 90.54 this week, moving further above the overbought threshold of 80.00. Buy weakness to my semiannual and annual value levels of $20.77 and $19.83, respectively. Sell strength to my weekly and semiannual risky levels of $25.09 and $28.18, respectively.

Toll Brothers (TOL)
Toll Brothers (TOL)

Courtesy of MetaStock Xenith

Toll Brothers is in bull-market territory, 38.7% above its Nov. 9 low of $26.65, and set its multiyear intraday high of $37.37 on April 19. The stock is well below its July 2005 peak of $58.67.

The weekly chart is positive but overbought with the stock above its key weekly moving average of $35.46 and above its 200-week simple moving average of $33.39. Weekly momentum is projected to slip to 81.63 this week, still above the overbought threshold of 80.00. Buy weakness to my quarterly value level of $26.27. My semiannual and annual pivots are $34.60 and $35.71, respectively. Sell strength to my weekly risky level of $39.97.

Armstrong World (AWI)
Armstrong World (AWI)

Courtesy of MetaStock Xenith

The weekly chart is positive with the stock above its key weekly moving average of $44.72 and above its 200-week simple moving average of $44.36. Weekly momentum is projected to rise to 69.64 this week. Buy weakness to my quarterly value level of $35.41. My semiannual pivot is $43.58. Sell strength to my weekly and annual risky levels of $49.62 and $63.58, respectively.

Lennox (LII)
Lennox (LII)

Courtesy of MetaStock Xenith

The weekly chart is neutral, with the stock above its key weekly moving average of $165.84 and will above its 200-week simple moving average of $113.41. Weekly momentum is projected to slip to 75.02, trending below the overbought threshold of 80.00.

Buy weakness to my monthly and annual value levels of $159.17 and $141.93, respectively. Sell strength to my quarterly and semiannual risky level of $170.20 and $173.21, respectively.

Masco (MAS)
Masco (MAS)

Courtesy of MetaStock Xenith

The weekly chart is neutral, with the stock just above its key weekly moving average of $33.63, and well above its 200-week simple moving average of $25.12. Weekly momentum is projected to slip to 67.68 this week below the overbought threshold of 80.00.

Buy weakness to my annual value level of $30.40. Sell strength to my semiannual risky levels of $35.30.

Owens Corning (OC)
Owens Corning (OC)

Courtesy of MetaStock Xenith

The weekly chart is positive but overbought with the stock above its key weekly moving average of $60.13 and above its 200-week simple moving average of $44.05. Weekly momentum is projected to slip to 83.52 this week, still above the overbought threshold of 80.00.

Buy weakness to my semiannual value level of $51.28. My annual pivot is $60.30. Sell strength to weekly risky level of $63.65.

Vulcan Materials (VMC)
Vulcan Materials (VMC)

Courtesy of MetaStock Xenith

The weekly chart is neutral, with the stock below its key weekly moving average of $119.39 and well above its 200-week simple moving average of $86.04. Weekly momentum is projected to rise to 33.35 this week, rising above the oversold threshold of 20.00.

Buy weakness to my monthly value level of $116.35. Sell strength to my semiannual risky level of $122.81.

Advertisement

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Stocks

Why This Rally Made Sense: Cramer's 'Mad Money' Recap (Thursday 12/12/18)

Why This Rally Made Sense: Cramer's 'Mad Money' Recap (Thursday 12/12/18)

Dave & Buster's Weakness in Same-Store Sales Hits Shareholders

Dave & Buster's Weakness in Same-Store Sales Hits Shareholders

Market Movers: December FOMC Meeting

Market Movers: December FOMC Meeting

Government Shutdown Won't Hurt Stocks Much, History Says

Government Shutdown Won't Hurt Stocks Much, History Says

UK Prime Minister Theresa May Survives Leadership Challenge; Pound Rallies

UK Prime Minister Theresa May Survives Leadership Challenge; Pound Rallies