4 Of 5 Major Homebuilders Begin June In Bear Market Territory

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Includes: DHI, KBH, LEN, PHM, TOL
by: Richard Suttmeier

Summary

D.R. Horton is in bear market territory below my annual pivot of $45.45.

KB Home is deep into bear market territory below my quarterly risky level of $31.04.

Lennar is deep into bear market territory below my quarterly risky level of $55.77.

PulteGroup is in correction territory between its annual pivot of $29.23 and its quarterly risky level of $31.44.

Toll Brothers is deep into bear market territory, above its semiannual value level of $37.69.

You cannot be bullish on the housing market when five major homebuilders are in correction or bear market territory

On May 23, the Census Bureau reported that new single-family home sales fell 1.5% in April to 662,000 units, which is 11.6% above year-ago levels. The NAHB remains optimistic that more prospective buyers will enter the market in the months ahead. The chart below clearly shows that sales are way below potential.

New Single Family Home Sales On May 24, the National Association of Realtors reported that existing home sales fell 2.5% in April to 5.56 million units, seasonally-adjusted. Existing home sales are down 1.4% year over year due to reduced inventory for sale. Another factor is that home prices have rose to levels that prospective buyers just cannot afford.

Existing Home Sales On May 29, we learned that the S&P/Case-Shiller Home Price Indices continued to rise in March. The benchmark 20-City Composite was up 6.8% year over year to a new all-time high. Since March there have been indications that some home prices in several cities are starting to slip.

S&P Case-Shiller Home Prices The 20-City Composite had a reading of 208.62 in March which is a fresh all-time high, 1% above the July 2006 peak. In March 2012, the index was 134.07, down 35.1% from the high. The composite is 55.6% above the trough.

Scorecard for the five major homebuilders

Scorecard For The Major Homebuilders Let’s look at the daily charts and key trading levels

D.R. Horton (NYSE:DHI)

Daily Chart For D R Horton Courtesy of MetaStock Xenith

The daily chart for D.R. Horton shows that the stock is below its 50-day and 200-day simple moving averages at $43.66 and $44.38 as a ‘death cross’ formed on May 18. This confirmation indicates that lower prices lies ahead. The stock is below my quarterly, semiannual and annual pivots of $44.34, $45.41 and $45.45, respectively.

Trading Strategy: Buy weakness to the 200-week simple moving average of $32.23 and reduce holdings on strength to my quarterly, semiannual and annual pivots at $44.34, $45.41 and $45.45, respectively.

KB Home (NYSE:KBH)

Daily Chart For KB Home Courtesy of MetaStock Xenith

The daily chart for KB Home shows that the stock is below its 50-day and 200-day simple moving averages at $27.32 and $27.99, respectively, as a ‘death cross’ formed on May 21. This indicates that lower prices lie ahead. The horizontal lines below the market are my annual and semiannual value levels of $22.52 and $22.40, respectively. The horizontal lines above the market are my quarterly and monthly risky levels of $31.04 and $33.14, respectively.

Trading Strategy: Buy on weakness to my annual and semiannual value levels of $22.52 and $22.40, respectively, and reduce holdings on strength to my quarterly and monthly risky levels at $31.04 and $33.14, respectively.

Lennar (NYSE:LEN)

Daily Chart For Lennar Courtesy of MetaStock Xenith

Lennar is also below a ‘death cross’ since on May 8 when the 50-day simple moving average fell below the 200-day simple moving average with these levels now at $55.37 and $57.66, respectively, indicating that lower prices lie ahead. The stock is below four horizontal lines which are quarterly, semiannual, monthly and annual risky levels at $55.77, $61.11, $62.6 and $70.88, respectively.

Trading Strategy: Buy weakness to the 200-week simple moving average of $48.61 and reduce holdings on strength to my quarterly, semiannual, monthly and annual risky levels at $55.77, $61.11, $62.61 and $70.88, respectively.

PulteGroup (NYSE:PHM)

Daily Chart For PulteGroup Courtesy of MetaStock Xenith

PulteGroup is on the cusp of its 50-day and 200-day simple moving averages at $29.97 and $30.00, respectively. The horizontal lines show my semiannual value level of $25.90, my annual pivot of $29.23, my quarterly risky level of $31.41 and my monthly risky level at $34.42.

Trading Strategy: Buy weakness to my semiannual value level of $25.96 and reduce holdings on strength to my quarterly risky level of $31.41. My annual pivot at $29.23 has been a magnet each week since the week of Feb. 9.

Toll Brothers (NYSE:TOL)

Daily Chart For Toll Brothers Courtesy of MetaStock Xenith

Toll Brothers has been below a ‘death cross’ since April 27 with the 50-day and 200-day simple moving averages now at $42.34 and $44.36, respectively. My semiannual value level is the lowest horizontal line at $37.69. My quarterly, monthly and annual risky levels are the horizontal lines at $45.91, $47.24 and $48.60, respectively.

Trading Strategy: Buy weakness to my semiannual value level of $37.69 and sell strength to my quarterly, monthly and annual risky levels of $45.91, $47.24 and $48.60, respectively.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.