NEW YORK (TheStreet) -- Homebuilders led by D.R. Horton (DHI) , KB Home (KBH) , Lennar (LEN) , PulteGroup (PHM) , Ryland Group (RYL) and Toll Brothers (TOL) fell last week, hitting a low of recent trading ranges and giving investors buying opportunities.
The sector rebounded on Thursday after the National Association of Home Builders Housing Market Index stayed above the neutral 50 reading for October. The rally continued on Friday on a report of stronger-than-expected housing starts for September.
This week's housing news will include a report on Tuesday on existing home sales, earnings from Pulte and Ryland before the opening bell on Thursday, and a report on Friday on new home sales. If the homebuilder stocks continue to rebound, investors may have the opportunity to book profits toward the high end of the trading ranges.
The first chart compares homebuilder sentiment to single-family housing starts.
The NAHB HMI (blue line) declined five points to 54 in October, while single-family starts rose 1.1% to an annual rate of 646,000 in September. Single-family starts have been between 583,000 and 652,000 year to date, compared with a normal rate of 1.1 million to 1.2 million units.
Homebuilders continue to complain that tight mortgage lending standards are hindering a housing recovery, and 83% of the members of the NAHB say they have lost sales because of tight mortgage standards.
Let's look at the weekly graph for the PHLX Housing Sector (HGX) , which consists of 10 homebuilders and nine companies that provide products and services to the housing industry.
Courtesy of MetaStock Xenith
The busting of the housing bubble began with the housing index in July 2005. The index crashed 82% to its March 2009 low. The breakout above the 200-week simple moving average (green line) in January 2012 triggered strength to the top horizontal dashed line in May 2013, where the index stalled in May 2013.
This line is called the 61.8% Fibonacci retracement of the decline from the July 2005 high to the March 2009 low. The trading range since May 2013 has been between the 50% retracement at 173.80 and the 61.8% at 202.05.
Here are updated trading ranges for the homebuilders:
D.R. Horton ($21.56) is trading between its Oct. 13 low at $19.29 and its 200-day SMA of $22.37.
KB Home ($15.51) is trading between its Oct. 13 at $13.75 and its 200-day SMA of $17.23.
Lennar ($41.46) is trading between its Aug. 1 low at $35.73 and its July 1 high at $42.67 with its 200-day SMA at $39.64.
PulteGroup ($18.23) is trading between its Oct. 13 low at $16.56 and its 200-day SMA of $19.15.
Ryland Group ($33.55) is trading between its Oct. 13 low at $30.33 and its 200-day SMA of $38.62.
Toll Brothers ($31.23) is trading between its Oct. 13 low at $28.93 and its 200-day SMA of $35.18.
Analysts estimate that PulteGroup will report earnings of 36 cents per share and Ryland 79 cents per share. Both companies missed first- and second-quarter estimates, reasons for their weak levels and 2014 lows on Oct. 13.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff
TheStreet Ratings team rates D R HORTON INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate D R HORTON INC (DHI) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and solid stock price performance. We feel these strengths outweigh the fact that the company has had subpar growth in net income."
You can view the full analysis from the report here: DHI Ratings Report