Homebuilder Stocks Mixed Despite Strong Housing Starts

Housing starts surged by 25.5% in October to an annual rate of 1.32 million units. Single-family housing starts rose by 10.7% to a seasonally adjusted rate of 869,000 units. Data on homebuilding was firm in November and October. The National Association of Home Builders reported that the Housing Market Index stayed at 63 in November.

But strong housing starts haven't helped housing stocks too much.

Mixed weekly charts for homebuilders put the focus on Fibonacci retracements on daily charts. D.R. Horton (DHI) and PulteGroup (PHM) have negative but oversold weekly charts. Lennar (LEN) has an oversold weekly chart, but will shift to positive on a close this week above its 200-week simple moving average of $43.09. KB Home (KBH) will have a positive weekly chart if the stock ends the week above its 200-week simple moving average of $16.19. Toll Brothers (TOL) has a positive weekly chart, but is well below its 200-week simple moving average at $33.57.

Here's the monthly graph of the NAHB Housing Market Index vs. Single-Family Housing Starts.

 

The NAHB Housing Market Index, at 63 in November, is in blue, with the scale on the left of the graph. Single-family starts are shown in red. The reading on the graph is 783,000 units reported for October. This scale is on the right of the graph.

The NAHB said that "a firming job market, a growing economy and rising household formations will keep the housing recovery on track into next year."

This optimism ignores the fact that mortgage rates are significantly higher than they were a month ago and that the price of a new home is rising much faster than family incomes.

Here's a scorecard for five major homebuilders, followed by their daily technical charts.

 

Here's the daily chart for D.R. Horton.

 

Courtesy of MetaStock Xenith

D.R. Horton closed Thursday at $28.57, down 10.8% year to date. It is in correction territory, 17.3% below its multiyear intraday high of $34.56, set on July 21. The stock is also in bull market territory, 24.4% above its Feb. 9 low of $22.97.

The daily chart shows the Fibonacci retracement levels of the rise from the Feb. 9 low to the July 21 high of $34.56. This stock set its all-time high of $42.82 in July 2005.

Since the stock set its July 21 high, it declined to its 23.6% retracement on Aug. 4 and moved back and forth around this level until Sept. 9, when the stock dropped to its 38.2% retracement of $30.12, which was a magnet until Oct. 10. The next leg lower had the stock reach its 50% retracement of $28.76 on Oct. 13. This level as been a magnet since then. In between, the 61.8% retracement of $27.39 was tested between Nov. 8 and Nov. 14.

Investors looking to buy the stock should do so on weakness to $25.48, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $31.46, which is a key level on technical charts until the end of 2016.

Here's the daily chart for KB Home.

Courtesy of MetaStock Xenith

KB Home closed Thursday at $15.18, up 23.1% year to date. It is 9.4% below its multiyear intraday high of $16.76, set on July 27. The stock is in bull market territory, 67.9% above its Jan. 20 low of $9.04.

The daily chart shows the Fibonacci retracement levels of the rise from the Jan. 20 low to its July 27 high. This stock set its all-time high of $85.45 in July 2005.

Since setting its high on July 27, the stock traded sideways to down until testing its 23.6% retracement of $14.93 on Sept. 9, which became a magnet since then. The low of $14.06, set on Nov. 2, held the 200-day simple moving average at $14.19.

Investors looking to buy the stock could have done so at its 200-day simple moving average, now at $14.44. There is a pivot at $15.37 still in play until the end of the year. Investors looking to reduce holdings should consider selling strength to $17.49 and $18.41, which are key levels on technical charts until the end of 2016.

Here's the daily chart for Lennar.

Courtesy of MetaStock Xenith

Lennar closed Thursday at $43.21, down 11.7% year to date. It is in correction territory, 12.9% below its multiyear intraday high of $49.60, set on July 27. The stock is 16.4% above its Feb. 11 low of $37.13.

The daily chart shows the Fibonacci retracement levels of the rise from the Feb. 11 low to the July 27 high. This stock set its all-time high of $68.86 in July 2005.

After setting its July 27 high, the stock began to cascade lower. The 23.6% retracement of $46.65 became a magnet between July 29 and Sept. 8. The next wave lower crossed the 38.2% retracement of $44.83 on Sept. 20, then the 50% retracement of $43.36 on Sept. 23. The 61.8% retracement of $41.89 has been a magnet since Oct. 3.

After trading as low as $39.68 on Nov. 9, the stock has recaptured the 61.8% retracement of $41.89 on Nov. 14 and briefly traded above its 50% retracement of $43.36 on Thursday.

Investors looking to buy the stock should consider doing so on weakness to $38.95, which is a key level on technical charts until the end of next week. Investors looking to reduce holdings should consider selling strength to $44.79, which is a key level on technical charts until the end of 2016.

Here's the daily chart for PulteGroup.

Courtesy of MetaStock Xenith

Pulte closed Thursday at $18.94, up 6.3% year to date. It is in correction territory, 15.4% below its multiyear intraday high of $22.40, set on July 25. The stock is also in bull market territory, 29.6% above its Jan. 20 low of $14.61.

The daily chart shows the Fibonacci retracement levels of the rise from its Jan. 20 low to its July 25 high. This stock set its all-time high of $48.22 in July 2005.

Since setting its July 25 high, the stock stayed above its 23.6% retracement of $20.56 until Sept. 9, when the decline to the 38.2% retracement, or $19.42, began. After testing this level on Sept. 20, there was a rebound back to the 23.6% retracement. The next wave down went through the 38.2% retracement on Oct. 20, then below the 200-day simple moving average of $18.94 on Oct. 25 to a low of $17.69 on Nov. 9, below its 50% retracement of $18.50. This level has since been a magnet, with Thursday's close above $18.50 but below its 200-day simple moving average, now at $19.13.

Investors looking to buy the stock could have done so on weakness to $18.44, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider selling strength to $22.08 and $23.05, which are key levels on technical charts until the end of 2016.

Here's the daily chart for Toll Brothers.

 

Courtesy of MetaStock Xenith

Toll Brothers closed Thursday at $29.14, down 12.5% year to date. It is 9.6% below its multiyear intraday high of $32.25, set on Aug. 23. The stock is also in bull market territory, 22.7% above its Feb. 11 low of $23.75.

The daily chart shows the Fibonacci retracement levels of the rebound from its Feb. 11 low to its Aug. 23 high. This stock set its all-time high of $58.67 in July 2005.

Since setting the Aug. 23 high, the stock broke below the 23.6% retracement of $30.24 on Sept. 9, then below its 38.2% retracement of $29 on Oct. 13. The 50% retracement of $28 and the 61.8% retracement of $27 were magnets between Oct. 27 and Nov. 10, as the stock rebounded to as high as $29.72 on Nov. 11.

Investors looking to buy the stock should consider doing so on weakness to $27.98, which is a key level on technical charts until the end of next week. Investors looking to reduce holdings should consider selling strength to $32.67, $34.50 and $35.46, which are key levels on technical charts until the end of 2016.

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

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