Home Builders Hammered by Housing Data

Tickers in this article: DHI HGX HOV KBH LEN PHM RYL SPF TOL
My benchmark for the home builder industry is the PHLX Housing Sector Index , which plunged 5.5% on Wednesday to 179.51. The daily chart for HGX had been showing a topping out pattern since the end of January despite setting a multi-year high at 194.06 on Feb 13. HGX broke below its 21-day simple moving average (SMA) at 188.71 and closed Wednesday just below its 50-day SMA at 180.11 with the 200-day SMA at 153.60, which lines up with my semiannual value level at 152.56.

Chart Courtesy of Thomson / Reuters

On Jan. 17, I wrote Overvalued Home Builders Face Earnings Hurdle and provided my "buy and trade" strategies pre-earnings for the eight home builders I have been covering.

On Jan. 28, I wrote Will Homebuilders Q4 Support Additional Share Price Strength? In this post I honed in on earnings from four home builders and two other stocks that provide services to home building.

On Feb. 4, I wrote Book Profits in Overvalued Market, and profiled four home builders and six other stocks related to home building and the construction sector. My strategy presented in this post is to use a "buy and trade" strategy to book profits on strength, and raise cash while doing so.

The construction sector was the most overvalued sector, by 26.9% yesterday, but today is 23.3% overvalued, falling behind consumer staples at 24.1% overvalued. At www.ValuEngine.com, we still show that 15 of 16 sectors are overvalued, 11 by double-digit percentages.

D.R. Horton ($21.93 vs. $23.35 on Feb. 4) set a multi-year high at $24.66 on Feb. 12. With this strength, investors had the opportunity to book profits and raise cash at my monthly risky level at $24.10. The daily chart is negative and the weekly chart shifts to negative on a close this week below the five-week modified moving average (MMA) at $21.96. My semiannual value level is $20.50 with the monthly risky level at $21.92.

Hovnanian ($5.29) is well below its Jan. 2 high at $7.43. The daily chart is negative and the weekly chart is negative given a close this week below the five-week MMA at $5.74. My quarterly value level lags at $2.89 with a weekly pivot at $5.31 and semiannual risky level at $6.00.

KB Home ($18.03) set a multi-year high at $20.04 on Feb. 12. The daily chart is negative and the weekly chart shifts to negative given a close this week below the five-week MMA at $17.63. My semiannual value level lags at $10.77, with a weekly pivot at $20.13 and monthly risky level at $21.35.

Lennar ($37.18 vs. $41.07 on Feb. 4) set a multi-year high at $43.33 on Jan. 28. The daily chart is negative and the weekly chart stays negative on a close this week below the five-week MMA at $39.59. My semiannual value level is $36.03 with a weekly risky level at $42.74.