Homebuilder Stocks Have Solid Gains Since Their June 2022 Lows. 3 Of 5 I Follow Are Also In Correction Territory. Here’s How To Trade Them

All five homebuilder stocks I follow: DR Horton (DHI), KB Home
KBH
, Lennar
LEN
, Pultegroup (PHM) and Toll Brothers
TOL
traded to their 2023 highs on February 2, 2023. Their fundamental data is positive with price-to-earnings ratios between 3.92% and 5.75%. Their dividend yields are also favorable between 1.08% and 1.68%. Be careful as their price gains since setting their 2022 lows range between 20.8% and 33.5%.

DR Horton, KB Home and Lennar are in correction territory down 10.9%, 12.6% and 10.7%, respectively.

The PHLX Housing Index (.HGX) ($446.94) is up 11% year-to-date and its 7.7% below its February 2 high of $484.03. It traded as low as $331.20 on June 17, 2022 and is 17.8% above this level.

The daily chart for the Housing Index

The daily chart for HGX shows the index trading between its semiannual pivot at $436.45 and its quarterly pivot at $459.76. These are the lower two horizontal lines.

The upper horizontal line is the annual risky level at $480.13 which was tested on February 2, 2023. This was a major reason to reduce holdings on the homebuilder stocks. The homebuilders in this report are components of HGX.

HGX has been above its 200-day simple moving average since November 10, 2022. A golden cross formed on December 27 when the 50-day simple moving average moved above the 200-day simple moving average.

The 50-day simple moving average held on weakness on March 2, 2023. The 200-day simple moving average is now at $398.93.

The weekly chart for the Housing Index

The weekly chart for HGX is neutral with the index above its five-week modified moving average at $440.51. It’s well above its 200-week simple moving average, or “reversion to the mean” at $393.77.

The 12x3x3 weekly slow stochastic reading is declining at 69.32 on a scale of 00.00 to 100.00. There is a downtrend connecting the high set at $538.36 during the week of May 14, 2021, and the high of $531.14 set during the week of December 31, 2021. This trend is projected to be $516.81 at the end of May 2023.

DR Horton (DHI): The weekly chart for DR Horton is negative with the stock below its five-week modified moving average at $93.26. The 200-week simple moving average or reversion to the mean is $72.47. The 12x3x3 weekly slow stochastic reading is declining at 63.95.

Trading Strategy: Buy weakness to its semiannual value level at $88.05. Reduce holdings on strength to its annual pivot at $97.71.

KB Home (KBH): The weekly chart for KB Home is neutral with the stock just above its five-week modified moving average of $35.53. It’s just above its 200-week simple moving average at $35.04, which I consider its reversion to the mean. The 12x3x3 weekly slow stochastic reading is declining at 65.57.

Trading Strategy: Buy weakness to its 200-day simple moving average at $31.41. Reduce holdings on strength to its semiannual and annual risky levels at $39.27 and $40.21.

Lennar (LEN): The weekly chart for Lennar is neutral with the stock just above its five-week modified moving average of $97.33. The stock is well above its 200-week simple moving average or reversion to the mean at $78.47. The 12x3x3 weekly slow stochastic reading is declining at 56.31.

Trading Strategy: Buy weakness to its annual value level at $94.14. A semiannual pivot is $97.75. Sell strength to its quarterly risky level at $105.48.

Pultegroup (PHM): The weekly chart for Pultegroup is neutral with the stock above its five-week modified moving average of $52.89. The stock is well above its 200-week simple moving average or reversion to the mean at $43.54. The 12x3x3 weekly slow stochastic reading is declining at 73.52.

Trading Strategy: Buy weakness to its semiannual and annual value levels at $52.65, and $50.89. Sell strength to its February 2 high at $60.89.

Toll Brothers (TOL): The weekly chart for Toll Brothers is neutral with the stock above its five-week modified moving average of $56.97. The stock is well above its 200-week simple moving average or reversion to the mean at $47.34. The 12x3x3 weekly slow stochastic reading is declining at 76.31.

Trading Strategy: Buy weakness to its annual and semiannual value levels at $53.24, and $53.24. Sell strength to its quarterly pivot at $62.24.