Housing-Related Stocks Hold Up Despite Weak Data

NEW YORK (TheStreet) -- The National Association on Home Builders Housing Market Index slumped by a record 10 points to 46 in February back below the neutral reading of 50, partially due to bad weather.

Since the end of January only four of 12 homebuilder stocks in today's post have gains led by Lennar (LEN) up 4.2% followed by Toll Brothers (TOL) up 3.9%. The eight others declined between 1.8% and 4.5% since Jan. 31.

The important component of housing starts is single-family starts which plunged 15.9% in January to an annual rate of 573,000 below the important 600,000 threshold. The December rate was 667,000 and the November level was 727,000 so the trend suggests that the market for single-family homes has stalled at 60% of potential which is the 1,000,000 to 1,200,000 unit range. 

As the above chart shows the Housing Market index stalled just below the 60 threshold with single-family starts is back below the 600,000 threshold.

I have been tracking the weekly chart for the PHLX Housing Sector Index (^HGX) which has 19 components including 11 of the 12 homebuilders I have been profiling. Beazer Homes (BZH) is not in this housing index. The other eight components provide products and services that support the housing market, and all have gains since the end of January.

The two best performers are Owens Corning (OC) and the provider of insulation, roofing, siding, stone and glass has a gain of 17.9% since the end of January. In second place is Vulcan Materials (VMC) and the producer of asphalt mix, concrete and cement has a month-to-date gain of 6.5%.

Courtesy of MetaStock / XENITH

The chart above shows the Fibonacci retracements of the decline in the housing sector index from its mid-2005 high to the March 2009 low. Today the index (207.70) is above the 61.8% retracement level at 202.05 not on the strength of the 11 homebuilders but on the strength of the eight in the housing market in supporting roles.

Crunching the Numbers with Richard Suttmeier

Today's table shows the gains and losses for 12 homebuilders and eight companies that provide products and services to the housing market. Note that eight of the 12 homebuilders have declined since the end of January as shown in Red in the % Change column.

In the column labeled Last 12-Month Return I show the percent gain or loss over the last 12 months. In today's table the only loser over the last 12 months is homebuilder MDC Holdings (MDC) down 20.4%.

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics. 

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (even Apple declined to its 200-week SMA in June 2013)

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (even Apple tested or crossed its 200-day SMA in nine of the last 10 years)

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

Beazer Homes ($21.49 vs. $22.51 on Jan. 31, down 4.5%) has a negative weekly chart so odds favor weakness to its 200-day SMA at $19.52. The buy-and-trade strategy is to use a GTC limit order to sell strength to $25.77.

DR Horton (DHI) ($23.65 vs. $23.48 on Jan. 31, up 0.7%) has a positive but overbought weekly chart. The buy-and-trade strategies are to buy weakness to the value level at $22.46 or to sell strength to the risky level at $28.19 using GTC limit orders.

Hovnanian (HOV) ($5.88 vs. $6.03 on Jan. 31, down 2.5%) has a negative weekly chart. The prudent buy-and-trade strategy is buy weakness to the second value level at $5.13 using a GTC limit order.

KB Home (KBH) ($19.00 vs. $19.34 on Jan. 31, down 1.8%) has a positive but overbought weekly chart so it's extremely important to have a weekly close above the five-week MMA at $18.54 this week.

Lennar($41.85 vs. $40.16 on Jan, 31, up 4.2%) has a positive but overbought weekly chart. This stock is close to its multiyear intraday high at $44.40 set on May 20 which suggests using a GTC limit order to reduce long positions on strength to the risky level at $43.94.

MDC Holdings ($29.51 vs. $30.89 on Jan. 31, down 4.5%) has a negative weekly chart. The stock has been trading back and forth around its 200-week SMA at $29.04 since mid-July 2013 and has been below its 200-day SMA at $31.19 since June 2013. To bet on a test of the 200-day consider a GTC limit order to buy weakness to the value levels at $28.38 and $27.72.

M/I Homes (MHO) ($23.80 vs. $24.59 on Jan. 31, down 3.2%) has a negative weekly chart. The buy-and-trade strategy is to use GTC limit orders to buy weakness to the 200-day SMA at $22.41 and to reduce positions on a GTC limit order to sell strength to the risky level at $26.18.

Meritage Homes (MTH) ($47.26 vs. $48.57 on Jan. 31, down 2.7%) has a neutral weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to the 200-day SMA at $44.51.

PulteGroup (PHM) ($20.37 vs. $20.32 on Jan. 31, up 0.2%) has a neutral weekly chart. The buy-and-trade strategy is to use a GTC limit order to buy weakness to the 200-day SMA at $18.64.

Ryland Group (RYL) ($43.05 vs $44.64 on Jan. 31, down 3.6%) has a positive but overbought weekly chart. A close this week below its five-week MMA at $42.78 downgrades the weekly chart to negative. The buy-and-trade strategy is to use a GTC limit order to buy weakness to the 200-day SMA at $40.77.

Standard Pacific (SPF) ($8.57 vs. $8.80 on Jan. 31, down 2.6%) has a neutral weekly chart. A close this week below its five-week MMA at $8.55 downgrades the weekly chart to negative. The buy-and-trade strategy is to use GTC limit orders to buy weakness to the 200-day SMA at $8.25 and to sell strength to the risky level at $8.89.

Toll Brothers($38.19 vs. $36.75 on Jan. 31, up 3.9%) has a positive but overbought weekly chart. The buy-and-trade strategy is to use GTC limit orders to buy weakness to the value level at $35.68 and to sell strength to the risky level at $44.60.

Armstrong World (AWI) ($59.27 vs. $55.68 on Jan, 31, up 6.4%) the designer of floors, ceilings and cabinets has a positive weekly chart with its all-time intraday high at $61.90 set on Feb. 14. The buy-and-trade strategy is to use GTC limit orders to buy weakness to the value level at $55.63 and to reduce positions on strength to the risky level at $61.20.

Fidelity National Title Group (FNF) ($33.22 vs. $31.54 on Jan. 31, up 5.3%) the title insurance company has a positive weekly chart with its all-time intraday high at $33.80 set on Dec. 26. The buy-and-trade strategy is to use a GTC limit order to buy weakness to my value levels at $29.55 and $38.73.

Lennox International (LII) ($89.44 vs. $86.56 on Jan. 31, up 3.3%) the air conditioning and heating company has a positive but overbought weekly chart with its all-time intraday high at $90.23 last Friday. The buy-and-trade strategy is to use GTC limit orders to buy weakness to the 50-day SMA at $85.81 and to reduce positions on a GTC limit order to sell strength to the risky level at $90.97.

Masco (MAS) ($22.44 vs. $21.16 on Jan. 31, up 6%) the home improvement and building products company has a neutral weekly chart, but shifts to negative with a close this week below the five-week MMA at $22.10. The buy-and-trade strategy is to use a GTC limit order to reduce positions on strength to the risky level at $26.30.

Owens Corning ($44.97 vs. $38.15 on Jan. 31, up 17.9%) the provider of insulation, roofing and siding has a positive weekly chart. The buy-and-trade strategy is to use a GTC limit order to reduce positions on strength to the risky level at $45.27.

Radian Group (RDN) ($15.40 vs $14.88 on Jan. 31, up 3.5%) the provider of private mortgage insurance has a positive weekly chart and set a multiyear intraday high at $16.01 on Feb. 19. The buy-and-trade strategy is to use a GTC limit order to reduce positions on strength to the second risky level at $16.01.

Vulcan Materials ($65.73 vs. $61.73 on Jan. 31, up 6.5%) the concrete and cement company has a positive but overbought weekly chart with a multiyear intraday high at $67.97 set on Feb. 6. The buy-and-trade strategy is to use a GTC limit order to reduce positions on strength to my second risky level at $68.53.

Weyerhaeuser (WY) ($30.18 vs. $29.88 on Jan. 31, up 1%) the timber and forest products company has a negative weekly chart. The buy-and-trade strategy is to use GTC limit orders to reduce positions on strength to the risky level at $36.86.

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

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at 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

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