Homebuilder Stocks Are Rebounding, Here’s How To Trade Them Now

Homebuilders DR Horton (DHI), KB Home
KBH
, Lennar (LEN), PulteGroup
PHM
, and Toll Brothers
TOL
held their 200-week simple moving averages over the last three weeks. I consider the 200-week SMA at the “reversion to the mean.” KBH traded below this key level, but it too is now above it.

Each of these stocks are trading below death cross formations on their daily charts. This occurs when the 50-day simple moving average declines below the 200-day simple moving average.

The National Association of Home Builders Housing Market Index fell to 69 in May, which is down from 82 when I last profiled the homebuilder stocks in February. The housing market is slowing due to higher mortgage interest rates, and due to the Covid pandemic. The price of a new home is up 20% year-over-year. There remains a shortage of favorable land and pressure from higher prices for building materials such as concrete and lumber.

Let’s look at the weekly charts and key trading levels.

DR Horton (DHI)

The weekly chart for DR Horton is negative but oversold with the stock below its five-week modified moving average of $72.46. Weakness has held its 200-week simple moving average or reversion to the mean at $64.36. The 12x3x3 weekly slow stochastic reading is 16.43, which is considered oversold. This reading was below 15.00 last week, which I considered “‘too cheap to ignore.”

The weekly chart will be positive given a weekly close above $72.46.

Trading Strategy: Buy weakness to its 200-week simple moving average at $64.36. Reduce holdings on strength to its semiannual, and annual risky levels at $82.97 and $90.78.

KB Home (KBH)

The weekly chart for KB Home is positive with the stock above its five-week modified moving average of $33.85. It’s also above its 200-week simple moving average at $33.26 which I consider its reversion to the mean. The 12x3x3 weekly slow stochastic reading is rising at 27.01.

Trading Strategy: Buy weakness to its weekly value level at $31.72. Reduce holdings on strength to its annual risky level at $37.94.

Lennar (LEN)

The weekly chart for Lennar is neutral with the stock just below its five-week modified moving average of $78.83. The stock held its 200-week simple moving average or ‘reversion to the mean’ at $70.80. The 12x3x3 weekly slow stochastic reading is rising at 21.93 moving above the oversold reading or 20.00.

Trading Strategy: Buy weakness to its 200-week simple moving average at $70.80. Reduce holdings on strength to its semiannual and annual risky levels at $84.63 and $94.68.

PulteGroup (PHM)

The weekly chart for PulteGroup is positive with the stock below its five-week modified moving average of $43.56. The stock held its 200-week simple moving average or ‘reversion to the mean’ at $39.98. The 12x3x3 weekly slow stochastic reading is rising at 26.28. PHM was oversold between the weeks of April 8 and May 13.

Trading Strategy: Buy weakness to its 200-week simple moving average at $39.98. Reduce holdings on strength to its annual and semiannual risky levels at $49.22 and $49.24.

Toll Brothers (TOL)

The weekly chart for Toll Brothers is positive with the stock above its five-week modified moving average of $48.54. The stock held its 200-week simple moving average or ‘reversion to the mean’ at $44.53. The 12x3x3 weekly slow stochastic reading is rising at 27.71. It was oversold between the weeks of February 18 and May 13.

Trading Strategy: Buy weakness to its 200-week simple moving average at $44.53. Reduce holdings on strength to its annual risky level at $53.51.