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Housing Stocks Bottom Off Ugly Data

The market moved lower early as more homes sales data shocked Wall Street. The Commerce Department reported new home sales crashed 33% in the month of May. Sales fell to a seasonally adjusted rate of 300,000, this is the lowest rate of all time. Analysts were expecting a drop of 20%.  The markets which had opened flat on the day took a nose dive on this news. However, since then, they have recovered nicely.

Retail investors would have thought this news would have crushed stocks like Toll Brothers, Inc. (NYSE:TOL), KB Home (NYSE:KBH) and The Home Depot, Inc. (NYSE:HD) but it has not.  Initially on the news, these stocks dropped sharply but quickly recovered.  Toll and KB Home have gone positive and Home Depot is near the flat line.  Why were these not crushed? Simply put, the news was already baked into the cake.  Take a look at each and every one of their daily charts.  They have all fallen drastically in the last couple months, sitting at 52 week lows. This tells us that today may have been the capitulation day for the home builders in the short term.

Keep a close eye on this sector, this massive drop in home sales is somewhat expected since the tax credit has now expired.  These may be putting in a bottom today and may have a 10% upside potential from here into mid to late July.  To get more information, analysis, guidance, education and swing trades, join the Research Center.

Gareth Soloway
Chief Market Strategist