E Signs Home Builder Stocks Are Rolling Over In Five Simple Charts

The Housing Market Index (HMI) is a measure of sentiment for home builders published by the National Association of Home Builders (NAHB) The HMI for December soared to a level not seen since June 1999 around the height of the second to last housing bubble. This level of confidence is truly impressive. However, the stock market was clearly not impressed. The iShares US Home Construction Index Fund ETF (ITB) lost a fraction at 0.1% even as the S&P 500 (SPY) jumped 0.7% to another all-time high.

iShares US Home Construction Index Fund ETF (ITB)

The iShares US Home Construction Index Fund ETF (ITB) has struggled to resume its rally for two months

November should have kicked off the seasonally strong period for the stocks of home builders. Instead, these stocks have largely underperformed the S&P 500. The lagging behavior of the home builders mirrors the lack of breadth in the general stock market. Below are five charts that paint the picture of under-performance with price action.

M/i Homes (MHO)

M/i Homes (MHO) sold off again on high volume for a test of support at its 50DMA

Like so many builders, M/i Homes (MHO) is benefiting from increased demand from buyers of lower-priced homes, especially in affordable markets. MHO's earnings report demonstrated the strength of the company's business model to build advance inventory to satisfy demand. I am eyeing the stock closely now as I contemplate whether the current test of support at the 50-day moving average (DMA) is a buying opportunity. Based on the charts below, I am not so sure I can blithely ignore the surge of volume on two key days of selling.

Century Communities (CCS)

Century Communities (CCS) is struggling to trade away from 200DMA support

Century Communities (CCS) has yet to recover from post-earnings selling in late October. The tumble helped end a period of mainly positive results for builders focused on lower-priced homes. I like the way the stock is holding on to support at its 200DMA, but I do not like the way the stock has yet to challenge overhead resistance at its 50DMA. A 200DMA breakdown would confirm that resistance and deliver a bearish signal.

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Disclosure: long call options in KBH, MDC, and a call spread in ITB

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