I was just discussing how ugly the Home builders look with AJ, one of our institutional sales traders.

Nearly every builder has been on a SELL SIGNAL in the Fusion IQ ranking system for several weeks now. These names are down 20 to 35% over that time.

AJ has been flashing TOL to various institutional clients as a possible short, but all of the builders — DHI, KBH, LEN, PLT — look pretty punk.

Considering we are now in the early stages of a second leg down in Housing, plus the excess new and shadow inventory that is out there, its hard to consider anything other than selling these names. Clients who are short have been advised not to cover yet.

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Residential Construction Member Names and Rankings

click for larger charts

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D.R. Horton (DHI)

Other Homebuilders’ charts after the jump . . .

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KB HOME (KBH)

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Lennar Corporation (LEN)

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PulteGroup (PHM)

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Toll Brothers (TOL)

Category: Quantitative, Real Estate, Short Selling, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Home Builders Sell Signals”

  1. NoKidding says:

    “for several weeks now”

    How about since June 2005?

  2. No, that is incorrect. You are two cycles behind.

    For example, PHM bottomed around ~7 before nearly doubling. DHI made a low over $4 before gaining nearly 300% to ~15. The rest of the sector behaved similarly.

    You must be more nimble than citing a collapse from 5 years ago that everyone in the world knows about . . . Unless you want to stay short a name running up 3X in your face — I don’t have the risk capital for that.

  3. constantnormal says:

    Is there a short-side ETF on the home-builders?

  4. The Curmudgeon says:

    Are the builder’s still building “spec” homes? Short all of ‘em that are. Unless you want to make a bet on them because they’ll engineer a government rescue again on this second leg. In many ways, they got a better deal than did the banks and the car companies last time, e.g., 1.4 trillion Fed Res support of GSE’s funding operations; homebuyer’s tax credit; special provisions for carrying losses backward on their income statements, etc. The homebuilding business is as fully beholden to government largesse as is any business out there, including the financial system.

  5. [...] Is it time to bottom fish in the homebuilders? Nope.  (Big Picture) [...]

  6. constantnormal says:

    @Curmudgeon

    it appears that the lobbyists of the home-builders are not so well-financed as the bankster lobbyists …

    http://www.calculatedriskblog.com/2010/06/housing-tax-credit-extension-update.html

    … but regardless of whether the tax credit gets extended in time to meet the June 30th deadline, it seems likely that the eager-to-please legislators will pass some sort of taxpayer bailout/support for homebuilders later this year.

    So enjoy this small dose of fiscal responsibility for the brief interval in which it lasts …

    It would be a refreshing change to see legislation that rewarded recycling of abandoned housing developments back into agriculturally usable land, provided that someone actually made productive use of that land …

  7. scarlo says:

    I grabbed some PHM, July Puts @ 9 pretty cheap. Figure if we break support, it’ll be soon. We’ll see if they pan out…

  8. call me ahab says:

    TC-

    no doubt- but even with the helping hand of the USG- it still staggers my mind that we haven’t seen one of these national builders fail.

    constant-

    just so everyone is clear- the extension is for closings only- the contract would still have to have been ratified no later than 4/30/2010.

    the extension will not effect new contracts-

    and I am not too certain that any new taxpayer based incentive would fly in the current environment

  9. rktbrkr says:

    what happened to the mini building booms in the sand states?

    100% gov driven overbuilding?

  10. SINGER says:

    charts look eerily similar

  11. Phillipe says:

    I played these on a bounce from the lows, and did okay — I’d be nervous in these names to be either short or long

  12. dead hobo says:

    SINGER Says:
    June 21st, 2010 at 2:28 pm

    charts look eerily similar

    reply:
    ————-
    All financial charts look eerily similar for many things. Hence my reluctance to accept magic charts as my savior.

  13. nemo says:

    http://blogs.wsj.com/deals/2010/06/17/cant-sell-your-home-blame-the-bp-oil-spill/

    Toll Brothers blames poor sales activity on “worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers.’’

    In late 2006, Toll blamed the housing market’s problems on Hurricane Katrina.

    In other breaking news, the dog ate Toll Brothers’ homework.

  14. Singer makes a good observation..esp. w/ the top 4 charts..

    One might keep an eye peeled for a, potential, “double-bottom”..

    TOL, obviously, failed ‘on that score’..

    But, regardless, these firms will never see anything like ’005, again, and it ain’t getting better, for them, anytime soon..as is alluded to, here “a second leg down in Housing,”–in the link, above..

  15. b_thunder says:

    But who were the cretins who tool all of the these stocks up 50% and more between Dec 09 and May 10?
    So many people believed in the “housing recovery” even after Obams’s cash bribes?

    these stocks topped out well before the overall market, and i believe now they’re sending the same signal: get ready for broad market selloff

  16. cognos says:

    so now I …”get ready for the broad market selloff”?

    what an idiot!

  17. Tarkus says:

    @dead hobo – “All financial charts look eerily similar for many things. Hence my reluctance to accept magic charts as my savior.”

    Charts will never be the “Magic Grail”, but sometimes they can prod your thinking…
    http://yfrog.com/hqtolp

  18. Jim67545 says:

    To ConstantNormal
    You could short ITB. I have. The other one XHB I believe has other stuff in it like LOW and HD. Probably will short more today which means this is where it will bottom and turn up. The Investing Gods are cruel, even though I make sacrafices.

  19. [...] only is the glut of supply causing prices to decline, but it is also causing homebuilder stocks to take a beating.  New homes cannot compete with foreclosed homes from a price standpoint, and builders are [...]

  20. [...] Home Builders Sell Signals (June 21, 2010) [...]