|Key Metrics for the Homebuilders|
|Homebuilders||52-Week High||10/10 Close||% Off High||Under-valued||Weekly Chart||Value Levels||Pivots||Risky Levels|
|St. Joe (JOE)||85.25||60.60||28.91%||11.30%||OS||59.91 S / 51.66 A||67.16 S||73.92 Q / 75.97 M|
|Beazer Homes (BZH)||67.50||53.22||21.16%||20.90%||DM||51.76 S||56.50 Q||62.98 Q / 63.52 M|
|Centex (CTX)||79.66||59.95||24.74%||16.20%||DM||56.38 A||63.81 S||68.83 M / 71.13 Q|
|D.R. Horton (DHI)||42.82||31.82||25.69%||24.20%||DM||28.50 S / 24.78 A||35.76 S||40.21 M / 42.28 Q|
|KB Homes (KBH)||85.45||64.58||24.42%||19.10%||DM||52.56 S||67.90 S||78.34 Q / 84.43 M|
|Lennar (LEN)||68.86||55.11||19.97%||20.50%||DM||50.89 A||59.11 S||63.38 M / 66.51 S|
|Pulte Homes (PHM)||48.23||36.40||24.53%||22.00%||DM||31.01 S / 26.98 A||37.90 S||46.51 Q / 48.66 M|
|Ryland Group (RYL)||83.25||62.25||25.23%||17.70%||DM||46.24 A||61.82 S||70.76 Q / 73.41 S|
|Toll Brothers (TOL)||58.67||38.19||34.91%||28.20%||OS||31.08 S||40.57 S||46.14 Q / 51.63 Q|
|Source: Global Market Consultants|
Housing stocks have gone from momentum trades in June to value investments now. All of the homebuilders that I have been tracking ended Monday below their 200-day simple moving averages, which was the risk I projected in my last article on the industry. All of their weekly chart profiles are negative, with the Florida real estate developer St. Joe ( JOE) and Toll Brothers ( TOL) showing oversold weekly slow stochastic readings below 20 on a scale of zero to 100. At their highs, all of these stocks were overbought with readings above 80. When I first wrote about the homebuilders on June 17, I viewed the group as the hottest momentum trade in the market. However, I warned that the monthly chart profiles for the homebuilders had become parabolic, a condition that has preceded all bubbles, and on Aug. 26, I made the case that share prices for the housing stocks and St. Joe had in fact peaked in July. All of the housing stocks I'm covering have declined 20% or more from their 52-week highs set in July, which makes now a good time to consider buying them for longer-term value. You want to buy these stocks when they are at least 20% undervalued, with an oversold weekly chart profile and on weakness to a value level.
The housing market appears to be on solid ground. Housing prices seem to have peaked, with only a modest pullback in prices in some parts of the country. Higher mortgage rates have not been cited as a factor in slowing sales. In fact, D.R. Horton ( DHI) reported Tuesday morning that fourth-quarter sales rose by 33% for the quarter ended Sept. 30 compared to the same quarter a year ago. St. Joe has held a major support level, my semiannual pivot at $59.91, which it has been bouncing off of since Sept. 29. Stability for St. Joe could help the homebuilders, as I believe the company's shares exhibit leadership in the sector. If St. Joe continues to have weekly closes above $59.91, the homebuilders should settle around current levels. If St. Joe drops below that level, it should weaken to $51.66 and the homebuilders are likely to test the value levels in the table below. Long-term investors who choose to buy now should also be prepared to add to positions at lower levels. New monthly and quarterly value levels, pivots and risky levels are based upon the closes from Sept. 30.