Market Overview

Could A Housing Stock Correction Be Overdue?

Could A Housing Stock Correction Be Overdue?
Related TOL
Spring Is Heating Up For Homebuilders; Stocks Poised For Near-Term Upside
Attention, Income Investors: Homebuilders With The Best Dividend Yields
Homebuilders outperform after strong housing data (Seeking Alpha)

One of the leading and best performing stock sectors since October 4, 2011 has been the home-builders. Many traders and investors have missed this move higher in the home-builder stocks simply because this industry group has been depressed since topping out in August 2005. Quite frankly, this recent rise in the home-builder stocks can be categorized as a stealth rally, the sector has really sneaked under the radar of most traders and investors. The home-builder industry group still remains one of the strongest stocks sectors at this time.

As many of you know, the Federal Reserve recently announced its latest and greatest quantitative easing program labeled QE-3. This program include the purchase of $40 billion worth of mortgage backed securities every month. This news is certainly bullish for the home-builder stocks in the near term. The only problem with this industry group at this time is that they have run very far in such a short amount of time. In other words, the leading home-builder stocks are now trading into very important resistance levels on the weekly and monthly charts.

Many of the leading stocks such as Toll Brothers Inc (NYSE: TOL), and Lennar Corp (NYSE: LEN) have now retraced higher by 50.0 percent of their overall declines from the 2005 high. These stocks will now need to pullback or really consolidate much more before moving significantly higher on the charts. Other market leading home-builder stocks such as D.R. Horton Inc, KB Home (NYSE: KBH), and Pulte Group Inc (NYSE: PHM) have not rallied as much as Toll Brothers, and Lennar Corp. This tells us that Toll Brothers ,and Lennar Corp are the leading stocks in the sector.

Many talking heads in the financial media are calling a bottom in the housing and home-builder sectors. Whether or not the bottom is in for the home-builder sector really does not matter as a technical trader. A technical trader will simply wait for the correct and best chart patterns to present itself for a buying opportunity. Remember, the patterns on the charts are simply footprints of human emotion. So far, the home-builder stocks have made a solid first move higher, now it is all about waiting for the next opportunity in the sector.. Traders now must wait down the road a bit for the next buying opportunity to appear before buying into this sector again for the long term. Obviously, there will be short term trades that can be made while we wait for the next long term buying opportunity.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Trading Ideas


Related Articles (KBH + LEN)

View Comments and Join the Discussion!