Homebuilder Trading Opportunities Continue

NEW YORK ( TheStreet) -- Homebuilding is an important segment of the U.S. economy, and the stocks in this group continue to have their ups and downs. In this environment homebuilder stock ratings have been flip-flopping between buy, hold and sell. This volatility should continue to provide buy-and-trade opportunities.

On Sept. 26 I wrote, Homebuilder Volatility Provides Trading Opportunities and on this date the PHLX Housing Sector Index closed below its 200-day simple moving average, then declined to a low of 169.71 on Oct. 9. The rebound since then has the housing sector index back above its 200-day, now at 184.76.

The weekly chart for the housing sector index shows the decline from its mid-2005 high to its March 2009 low and the subsequent rebound back above its 200-week SMA as 2012 began. The 200-week is now at 130.31. The chart also shows that the 2013 trading range has been influenced by the 50.0% and 61.8% Fibonacci Retracements of the entire housing crash. These key levels are 174.17 and 202.51 respectively. As this index declines towards the low end of this range, homebuilders tend to be upgraded and be near tests of value levels. At the upper end of this range the homebuilders tend to be downgraded near tests of risky levels.

Chart Courtesy of MetaStock Xenith

The National Association of Home Builders (NAHB) Housing Market Index (HMI) slipped to 55 from 57 in October, still above the neutral 50 reading. Because of the partial shutdown of the government we do not know the housing starts figure for September. The NAHB estimates that Housing Starts came in around 900,000 units with single-family starts stable at around 625,000. When you look at the chart below observe that when the HMI is above 50, single-family starts were between annual rates of a million and 1.2 million. Homebuilding is thus running well below the industry's potential.

The NAHB continues to see pent-up demand for new single-family homes across the country, and attribute the hiccup in the HMI to the costs and availability of labor and lots, and the gridlock in Washington.

It appears that the spike in mortgage rates and the partial government shutdown also attributed to the pause in the market for new homes. While rates are higher they remain low by historical standards and therefore the NAHB expects home building and buyer optimism to recover.

The October reading of the Conference Board Consumer Confidence index was 71.2, the lowest reading since April and well below the September reading of 80.2. Consumer confidence has been below the neutral zone of 90 to 110 since the recession began at the end of 2007. The government shutdown and debt-ceiling crisis were cited as the cause for the latest decline in confidence.

The S&P/Case-Shiller Home Price Indices showed that its 20-City Composite rose by 1.3% sequentially in August in a deceleration from 1.8% sequential rise in July. The year over year gain was a solid 12.8%. The 20-City index is down 22.7% from its June/July 2006 high.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Beazer Homes ( BZH) ($18.41 vs. $18.18 on Sept. 25) is trading above its 200-day SMA at $17.68 with a weekly pivot at $19.68 and quarterly risky level at $20.44. Beazer reports quarterly earnings on Nov. 7 and EPS is expected to be 26 cents a share.

DR Horton ( DHI) ($19.52 vs. $20.16 on Sept. 25) has been upgraded to hold from sell and is trading between its 50-day and 200-day SMAs at $19.06 and $21.96. My annual value level is $16.05 with a semiannual pivot at $20.83 and semiannual risky level at $21.19. DR Horton reports quarterly earnings on Nov. 12 and EPS is expected to be 41 cents a share.

Hovnanian ( HOV) ($5.22 vs. $5.27 on Sept. 25) has been upgraded to sell from strong sell and is trading between its 50-day and 200-day SMAs at $5.19 and $5.58. My quarterly pivot is $5.47 with a semiannual risky level at $5.77. Hovnanian's next earnings release is on Dec. 12 and EPS is expected to be 16 cents a share.

KB Home ( KBH) ($17.49 vs. $18.10 on Sept. 25) has been upgraded to sell from strong sell and is trading between its 50-day and 200-day SMAs at $17.16 and $19.35 with a weekly risky level in between at $18.64. KB Home's next earnings release is on Dec. 19 and EPS is expected to be 45 cents a share.

Lennar ( LEN) ($36.64 vs. $36.39 on Sept. 25) has been trying to breakout above its 200-day SMA at $37.76 since Oct. 23. My semiannual value level is $35.45 with a weekly risky level at $38.47. Lennar reported quarterly results on Sept. 24 and beat EPS estimates by 8 cents earning 54 cents a share.

MDC Holdings ( MDC) ($30.44 vs. $30.65 on Sept. 25) has been upgraded to hold from sell and is trading just above its 50-day SMA at $29.51 with a weekly risky level at $31.45. MDC Holdings reported quarterly results on Oct. 29 and beat EPS estimates by 9 cents earning 73 cents a share.

M/I Homes ( MHO) ($21.11 vs. $20.79 on Sept. 25) has been downgraded to strong sell from sell and is trading between its 50-day and 200-day SMA at $19.75 and $22.90. My semiannual value level is $19.20 with a weekly pivot at $21.29 and semiannual risky level at $22.88. M/I Homes reported quarterly results on Oct. 24 and missed EPS estimates by a penny earning 47 cents a share.

PulteGroup ( PHM) ($18.00 vs. $17.18 on Sept. 25) is trading between its 50-day and 200-day SMAs at $16.49 and $18.96 with a weekly pivot at $18.09. Pulte reported quarterly results on Oct. 24 and beat EPS estimates by 11 cents earning 45 cents a share.

Ryland Group ( RYL) ($42.49 vs. $41.87 on Sept. 25) is trading above its 200-day and 50-day SMAs at $40.32 and $39.08 with a monthly value level is $41.19 with a weekly risky level at $45.59. Ryland reported quarterly results on Tuesday and matched EPS estimates earning 96 cents a share.

Standard & Pacific ( SPF) ($8.12 vs. $8.05 on Sept. 25) has been attempting to trend above its 200-day SMA at $8.29 since Oct. 24. My semiannual value level is $7.58 with a weekly risky level at $8.60. Standard & Pacific reports quarterly results in afterhours trading this afternoon and EPS is expected to be 12 cents a share.

Toll Brothers ( TOL) ($33.56 vs. $33.14 on Sept. 25) has been upgraded to hold from sell and has been trading around its 200-day SMA at $33.60 since Oct. 23. My annual value level is $31.95 with a weekly pivot at $33.95 and quarterly risky level at $34.56. Toll Brothers' next earnings release is on Dec. 3 and EPS is expected to be 40 cents a share.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier is the chief market strategist at AlphaPlus Analytics in addition to ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

If you liked this article you might like

New Tax Laws Make Experts Nervous About State of U.S. Housing Market

New Tax Laws Make Experts Nervous About State of U.S. Housing Market

Stock Markets Are Booming Again but Panties Prices Continue to Plunge

Stock Markets Are Booming Again but Panties Prices Continue to Plunge

Three Stocks That Have My Attention

Three Stocks That Have My Attention

Keep Playing the Energy Sector: Market Recon

Keep Playing the Energy Sector: Market Recon

Housing Market Better Than Data Show, Lennar Says as It Beats Estimates and Its Shares Rise

Housing Market Better Than Data Show, Lennar Says as It Beats Estimates and Its Shares Rise