How to Trade Homebuilders D.R. Horton, Toll Brothers, Lennar, More, on Housing Start Data

NEW YORK (TheStreet) -- The housing market showed renewed signs of growth in April as the spring selling season fueled a 20% surge in housing starts to a seasonally adjusted rate of 1.135 million units. This is the highest level of housing production since November 2007.

Despite this robust growth, investors should continue to trade the ranges for homebuilders D.R. Horton (DHI), KB Home (KBH), Lennar (LEN), Pulte (PHM), Ryland (RYL) and Toll Brothers (TOL).

This robust April housing start data followed the release of the NAHB Housing Market Index for May, which slipped two points to 54. The National Association of Home Builders tracks their housing sentiment index vs. single-family housing starts. This component of the housing starts data showed a gain of 17% in to a seasonally adjusted annual rate of 733,000 units.

The graph below shows the NAHB Housing Market Index vs. single-family housing starts. The Housing Market Index (or HMI, in blue with its scale on the left of the graph) shows the decline of two points to 54 in May. This index has been above the neutral reading of 50 for 11 consecutive months.

Single-family housing starts (in red with its scale at the right of the graph) shows the March rate of production, which was at an annual rate of 618,000 units. The 733,000 pace for April will show on this graph next month. Even with positive housing starts data, single-family starts remain well below the normal annual rate of 1.1 million to 1.2 million units.

On Tuesday, May 26, new home sales data for April will be released. The March data was below expectations, which suggests that builders may be increasing inventories of new homes on speculation.

Preliminary data from the FDIC suggests that community banks are increasing their exposures to construction and development loans. Data from the Federal Deposit Insurance Corporation could show a gain of about 12% in the number of banks overexposed to the construction and development loans vs. risk-based capital. This was one of the causes of the credit crunch that was related to the popping of the housing bubble.

Here are the performance measures and how to trade the six popular homebuilders.

D.R. Horton had a close of $26.77 on Tuesday, up 5.9% year to date vs. a gain of 12% a month ago. The low end of the trading range is the 200-day simple moving average of $24.38, with the 2015 high of $29.29 set on April 6.

The weekly chart is neutral, with the stock above its key weekly moving average of $26.72, but with declining weekly momentum.

Investors looking to buy D.R. Horton should place a good till canceled limit order to purchase the stock if it drops to $22.82, which is a key level on technical charts until the end of June.

Investors looking to book profits should place a good till canceled limit order to sell the stock if it rises to $28.36, which is a key level on technical charts until the end May.

KB Home had a close of $15.10 on Tuesday, down 8.8% year to date vs. a decline of 5.6% a month ago. The 200-day simple moving average has hit technical resistance, with this level now at $15.44 vs. $15.75 a month ago.

The weekly chart is neutral, with the stock above its key weekly moving average of $14.93 and its 200-week simple moving average of $14.61, but with declining weekly momentum.

Investors looking to buy KB Home should place a good till canceled limit order to purchase the stock if it drops to $12.53, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $16.91, which is a key level on technical charts until the end June.

Lennar had a close of $48.67 on Tuesday, up 8.6% year to date vs. a rise of 8.4% a month ago. The low end of the trading range is the 200-day simple moving average of $44.67, with the 2015 high of $53.67 set on April 6.

The weekly chart is neutral, with the stock above its key weekly moving average of $48.35, but with declining weekly momentum.

Investors looking to buy Lennar should place a good till canceled limit order to purchase the stock if it drops to $42.93, which is a key level on technical charts until the end of June.

Investors looking to book profits should place a good till canceled limit order to sell the stock if it rises to $52.48, which is a key level on technical charts until the end of May.

Pulte had a close of $20.05 on Tuesday, down 6.6% year to date vs. a gain of 3.4% a month ago. The stock rebounded on Tuesday and tested its 200-day simple moving average of $20.37. There is a price gap to the April 22 low of $21.46.

The weekly chart is negative, with the stock below its key weekly moving average of $20.61. The 200-week simple moving average is $15.93, with the 2015 high of $23.36 set on Feb. 24.

Investors looking to buy Pulte should place a good till canceled limit order to purchase the stock if it drops to $19.49, which is a key level on technical charts until the end of June. This key level was tested several times in May.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $21.65, which is a key level on technical charts until the end May.

Ryland had a close of $43.07 on Tuesday, up 12% year to date vs. a gain of 22% a month ago. The stock trades between its 50-day and 200-day simple moving averages of $45.37 and $39.61, respectively.

The weekly chart is negative with the stock below its key weekly moving average of $43.82. The 200-week simple moving average is $33.02. The 2015 high of $49.66 was set on March 31.

Investors looking to buy Ryland should place a good till canceled limit order to purchase the stock if it drops to $41.20, which is a key level on technical charts until the end of June. This key level was tested several times in May.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $43.69, which is a key level on technical charts until the end May.

Toll Brothers had a close of $37.90 on Tuesday, up 11% year to date vs. 12% a month ago. The stock is on the cusp of its 50-day simple moving average of $37.84, and well above its 200-day simple moving average of $34.89.

The weekly chart is neutral, with the stock above its key weekly moving average of $37.48, but with declining weekly momentum. The 200-week simple moving average is rising at $31.09.

Investors looking to buy Toll Brothers should place a good till canceled limit order to purchase the stock if it drops to $36.64, which is a key level on technical charts until the end of June. This key level was tested several times in May.

Investors looking to reduce holdings should place a good till canceled limit order to sell the stock if it rises to $43.35, which is a key level on technical charts until the end of June.

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

More from Opinion

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

It's Dumb to Think There Aren't Already Monopolies in Big Tech

It's Dumb to Think There Aren't Already Monopolies in Big Tech

Google's EU Battles Are Hardly a Reason to Panic

Google's EU Battles Are Hardly a Reason to Panic