Another Look at Homebuilder Stocks

Fundamentally, the construction sector is overvalued by 4.8%, according to ValuEngine.com, with the Building-Residential/Commercial industry overvalued by 16.6%.This is another reason to consider booking profits on the homebuilder stocks.

Another warning for housing comes from the Mortgage Bankers Association, which reported Wednesday that its seasonally adjusted index of mortgage application activity, including both refinancing and home purchases fell by 4.3% in the week ended last Friday. Refinancing activity has now been lower for four weeks in a row, while loan requests for home purchases gained 1.4%.

The weekly chart for the PHLX Housing Sector Index (144.15) shown above shows overbought momentum (12x3x3 weekly slow stochastic) with a reading of 88.57 on a scale off 00.00 to 100.00, where readings above 80.00 are overbought.

The weekly chart stays positive with a close this Friday above its five-week modified moving average at 139.51. Note that the Aug. 27 high at 146.61 was a test of the 38.2% Fibonacci Retracement of the entire down trend from the July 2005 high to the March 2009 low. This retracement level is 145.52. My annual value level is 122.53 with quarterly and weekly pivots at 135.17 and 143.82, and monthly risky level at 152.09.

The above table shows data from www.ValuEngine.com covering the 19 components of HGX listed alphabetically from top to bottom.

Reading the Table

OV/UN Valued -- The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating -- A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a Sell, a "3-Engine" rating is a Hold, a "4-Engine" rating is a Buy and a "5-Engine" rating is a Strong Buy.