Dec

28

Sentiment Survey: Homebuilders Still Going Down on Bad News

Pete @ 11:26 AM | | Start a Discussion 

28-housing.gifThe news this morning is that new-home sales plunged by 9 percent. Yesterday, it was reported that mortgage application volume dropped 7.6 percent last week, despite a dip in interest rates.

The media is debating whether or not the sector is close to a bottom [VIDEO]. Bargain hunting and bottom fishing is never easy. People tend to rush in much too soon and get stuck in value traps.

From a sentiment cycle perspective, the prime prerequisite is a washout: the stock price must stop dropping on bad news. And it doesn’t look like the homebuilders are there yet.

Let’s take a closer look at TOL, CTX, KBH, LEN and HOV.


These charts were prepared yesterday. We colored the price bars according to the status of our relative momentum indicator. The red and green dots are the InVivo.Stops.

27-hov.gif
Hovnanian Enterprises, Inc. (NYSE:HOV)

27-len.gif
Lennar Corporation (NYSE:LEN)

27-kbh.gif
KB Home (NYSE:KBH)

27-tol.gif
Toll Brothers, Inc.(NYSE:TOL)

27-ctx.gif
Centex Corporation (NYSE:CTX)

What is interesting is that most of these charts are now in neutral (yellow) territory. Those interested in bargain hunting will be watching for a couple of things:

  1. The price must stop going down on bad news.
  2. The price actually climbs the sentiment cycle Wall of Worry.

When these two conditions are in place, the risk may finally be worth the reward.

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