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Is it time to (warily) buy the homebuilders?

|Includes: D. R. Horton Inc. (DHI), KBH, LEN, PHM
Yes, I know that residential real estate is in shambles.  How could I not?  I live in the epicenter of real estate excess -- Southern California -- and many of my friends enjoyed a boom-boom decade in development, construction, brokering and lending.  (They're more somber these days).

And yes, I know about the precipitous drop in June pending home sales (19% year over year) reported last week.

Nevertheless, two home builders - DR Horton (NYSE: DHI) and PulteGroup, Inc.(NYSE: PHM) continue to appear on the FractalBox proprietary growth and value selection screens that we use to drive our strategy

And then on Monday, Deutsche Bank upgraded DHI, opining that:
"Five years into the housing market's fall, we believe it is finally near the point from which it can sustainably recover. We aren't upgrading our housing outlook; rather, we think the completion of the triple-U trajectory has brought housing to a natural bottom. Also, pessimistic builder valuations create an attractive entry point near to this natural bottom."
So is it time to buy the homebuilders? 

DHI has appeared on our fundamental buy screens since early February.  Since we first discovered it, DHI has made a round trip from $11 to $15 and back to the current $11 price level, along the way retesting the important $9.50 price bottom established back in December, 2009.  In fact, the stock has touched the $9.50 level three times over the last year (see below).
DHI has tested the $9.50 level three times in the last 12 months

Our early trend indicators have us long DHI as the recent the swing trading picture has become more bullish, with money flows becoming positive:

Nevertheless, Monday's big gap up was stalled at the 50d xma, which has offered formidable resistance over the last few weeks. 

A clear close in the vicinity of $11.50 - above current resistance levels -  would enhance the outlook and open the possibility for a run back to early May's $15 highs - a 38.5% gain from Tuesday's $10.83 close

While it is true that the best time to buy stocks is often when no one else seems to want them, be careful.  Pending a close above $11.50, keep one foot out the door.


Disclosure: Long DHI, Long PHM