Homebuilding Stocks Get Fresh Buy Signal

Includes: TOL, XHB
by: Michael Tarsala
We're waking up this morning to the first uptrend signal for homebuilding stocks all year, based on the Thomson Reuters Trend Intensity signal.

That omen comes amid new data that suggest U.S. housing prices are hunting for a bottom.
Facts of note:
As of last night's close, homebuilders become the 27th of 40 sectors we track to begin a new uptrend, based on our Trend Intensity signal. It helps us spot new trends, and gives us cues about their strength and length.
The last time we saw a positive signal for homebuilding stocks was late December of last year. From there, the XHB posted a 25 percent gain to this year's highs in April.The XHB has slightly outperformed the S&P since the start of last week. That’s not much, but it’s lagged badly from the April highs – down 19 percent versus only 6 percent for the benchmark index.

This week’s Case-Shiller data was the most dismal since March (the 20-city index up only 3.2%) But traders bought on the news. It appears to be a sign that sentiment is changing.
Other facts of note:
-- New housing starts are bouncing around their lowest levels in 47 years.
-- August housing starts were much better than expected.
-- California is on the rebound, with housing starts up for the fourth-straight months.
-- Rates are at a low, and have fallen even for jumbo mortgages.
-- Lumber prices are rising (considered a good sign for building). They consolidated in Q2, and continued to rise in Q3.
-- Stock markets are up strongly. That could help sales of higher-end homes that are paid for with buyers' stock and commodity trading gains (think Toll Bros. (NYSE:TOL)).

Disclosure: none

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