KB, Toll, Lennox Lead Housing Index to Post-Election High

Shares of homebuilders, D.R. Horton (DHI) , KB Home (KBH) Lennar (LEN) , Pulte Group (PHM) and Toll Brothers (TOL) remain in bull market territory since their post-election lows, but they are also deep in bear market territory vs.  their bubble peaks set in July 2005.

The National Association of Home Builders Housing Market Index gained two points, to 70, in May, just a point below its March high and two points below its all-time high of 72, set in June 2005. Single-family housing starts, the NAHB benchmark, rose by just 0.4% in April to an annual pace of 835,000 units.

The PHLX Housing Index has 19 components and includes companies that provide construction and materials products. Armstrong World (AWI) , Lennox International (LII) , Masco (MAS) , Owens Corning (OC) and Vulcan Materials (VMC) have under-performed the homebuilders so far in 2017, but still have solid gains since their post-election lows.

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. Only Lennox and Owens Corning set new post-election highs this month.

The overall housing market, which includes new home construction, home resales and home improvement projects remain firm, but below potential. The national delay in infrastructure programs has caused some weaknesses since setting post-election highs.

Over on Real Money, Jim Cramer gives advice to investors looking at how to play the Trump Trade. Get his insights or analysis with a free trial subscription to Real Money.

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 70 in May is shown in blue with the scale at the left side of the graph. Single-family housing starts is in red and scaled on the right side of the graph, and this is the reading for March, not the 835,000 units for April. Note that the HMI is leading the rise in starts by a significant margin, which remains a warning. When the index was 72 in June 2005, single-family starts were approaching 1.8 million units.

The NAHB indicates that the housing market is solidifying despite higher material costs and shortages of lots and labor. The subdued rise in single-family starts in April is just a slowdown of a solid year-to-date gain of 7%. Builders are concerned that construction costs continue to rise.

Housing Stocks Scorecard
Housing Stocks Scorecard

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 23.1% and 46.9% since their post-election lows. Only three of the housing-related stocks are in bull market territory since their post-election lows. Vulcan Materials is the laggard, 9.6% below its post-election high. In fact, this stock set a lower low since the election, on March 27.

When looking at the weekly charts below, keep an eye on the 200-week simple moving averages shown in green. Investors should consider this level as the "reversion to the mean." The "reversion to the mean" is an investment theory that the price or a stock, will eventually return to a longer-term simple moving average, and the 200-week is simple to track. A ticker trading above its "reversion to the mean" will eventually decline back to it on weakness. Similarly, a ticker trading below its "reversion to the mean" will eventually rebound to it on strength.

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

Courtesy of MetaStock Xenith

D.R. Horton ($32.86 on May 17) is in bull market territory, 23.1% 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 neutral with the stock just above its key weekly moving average of $32.79, but above its 200-week simple moving average of $26.54, considered the "reversion to the mean." Weekly momentum is projected to decline to 67.15 this week, down from 72.41 on May 12. Buy weakness to my monthly value level of $39.07. I show quarterly and semiannual pivots of $32.54 and $33.33, respectively. Sell strength to my annual risky level of $35.04.

KB Home (KBH)
KB Home (KBH)

Courtesy of MetaStock Xenith

KB Home ($20.82 on May 17) is in bull market territory, 46.9% above its Nov. 8 low of $14.17, and set its multiyear intraday high of $21.57, on May 16. 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 $20.11 and above its 200-week simple moving average of $15.83, which is the "reversion to the mean." Weekly momentum is projected to slip to 87.28, down from 92.30 to 88.13 on May 12, still 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 semiannual risky level of $23.29.

Lennar (LEN)
Lennar (LEN)

Courtesy of MetaStock Xenith

Lennar ($50.27 on May 17) is in bull market territory 26.7% 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 will be downgraded to negative if the stock ends the week below its key weekly moving average of $50.37, but is above its 200-week simple moving average of $44.10, which is the "reversion to the mean." Weekly momentum is projected to decline to 62.05 this week down from 68.10 this week. Buy weakness to my semiannual and quarterly value levels of $48.95 and $43.79, respectively. Sell strength my annual risky level of $59.99.

PulteGroup (PHM)
PulteGroup (PHM)

Courtesy of MetaStock Xenith

PulteGroup ($22.54 on May 17) is in bull market territory, 27.4% above its Nov. 9 low of $17.69, and set its multiyear intraday high of $24.43 on April 20. The stock is well below its July 2005 peak of $48.22.

The weekly chart is negative with the stock below its key weekly moving average of $22.74, and above its 200-week simple moving average of $19.50, which is the "reversion to the mean." Weekly momentum is projected to decline to 54.77 this week, down from 62.12 on May 12. Buy weakness to my semiannual and annual value levels of $20.77 and $19.83, respectively. Sell strength to my semiannual risky level of $28.18.

Toll Brothers (TOL)
Toll Brothers (TOL)

Courtesy of MetaStock Xenith

Toll Brothers ($36.94 on May 17) is in bull market territory, 38.2% above its Nov. 9 low of $26.65, and set its multiyear intraday high of $37.89 on May 17. 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 $36.12 and above its 200-week simple moving average of $33.45, as the "reversion to the mean." Weekly momentum is projected to rise to 83.89 this week up from 83.23 on May 12, 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 semiannual risky level of $37.50, which was tested on May 17.

Armstrong World (AWI)
Armstrong World (AWI)

Courtesy of MetaStock Xenith

Armstrong World ($43.90 on May 17) is 19% above its Nov. 8 low of $36.90, and set its post-election high of $48.00 on March 3.

The weekly chart is negative, with the stock below its key weekly moving average of $45.00 and below its 200-week simple moving average of $44.42, which is the "reversion to the mean." Weekly momentum is projected to decline to 68.26 down from 76.05 on May 12. Buy weakness to my quarterly value level of $35.41. My semiannual pivot is $43.58. Sell strength to my annual risky level of $63.58.

Lennox (LII)
Lennox (LII)

Courtesy of MetaStock Xenith

Lennox ($171.31 on May 17) and is in bull market territory 20% above its Nov. 10 low of $142.76, and set its post-election high of $172.95 on May 16.

The weekly chart is neutral with the stock above its key weekly moving average of $167.58 and well above its 200-week simple moving average of $115.44, which is the "reversion to the mean". Weekly momentum is projected to slip to 67.50 this week, down from 68.57 on May 12. Buy weakness to my monthly and annual value levels of $155.43 and $141.93, respectively. Sell strength to my quarterly and semiannual risky level of $170.20 and $173.21, respectively. The May 16 high was between these levels.

Masco (MAS)
Masco (MAS)

Courtesy of MetaStock Xenith

Masco ($36.85 on May 17) and is in bull market territory, 22.7% above its Nov. 9 low of $30.04, and set its post-election high of $37.58 on April 26.

The weekly chart is positive but overbought with the stock above its key weekly moving average of $35.54, and well above its 200-week simple moving average of $25.50, which is the "reversion to the mean." Weekly momentum is projected to rise to 80.08, above the overbought threshold of 80.00. Buy weakness to my annual value level of $30.40. My semiannual pivot is $35.30. Sell strength to my quarterly risky level of $37.25.

Owens Corning (OC)
Owens Corning (OC)

Courtesy of MetaStock Xenith

Owens Corning ($60.71 on May 17) is in bull market territory, 27.9% above its Nov. 8 low of $47.47, and set its post-election high of $63.85 on May 16.

The weekly chart shifts to negative if the stock ends the week below its key weekly moving average of $60.71 and above its 200-week simple moving average of $44.48, which is the "reversion to the mean." Weekly momentum is projected to slip to 74.27, from 79.72 on May 12. Buy weakness to my semiannual value level of $51.28. Quarterly and annual pivots are $58.08 and $60.30, respectively. Sell strength to the May 16 high of $63.85.

Vulcan Materials (VMC)
Vulcan Materials (VMC)

Courtesy of MetaStock Xenith

Vulcan Materials ($124.90 on May 17) is 14.6% above its March 27 low of $108.95. The stock is 9.6% below its post-election high of $138.18 set on Nov. 10.

The weekly chart is positive with the stock above its key weekly moving average of $123.42 and well above its 200-week simple moving average of $87.59, which is the "reversion to the mean." Weekly momentum is projected to rise to 64.18 this week, up from 57.26 on May 12. Buy weakness to my semiannual value level of $118.91. My semiannual pivot is $122.81. Sell strength to my quarterly risky level of $132.12.

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

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