Home Builders Are Weakening Once Again
A few months ago I had written that the home builders would attract value players soon enough. Well, the value players have been out in force. Below is a chart of Ryland Homes with a measure of buying pressure overlaid on price.
The first thing to notice on the chart is the double top. Notice how buying pressure made a significantly lower top on the second price top. The best way I could describe this action is the smart money or conservative investors likely liquidated on the first peak and the underperforming mutual funds, retail investors, true believers and speculators likely reloaded in an attempt to push the stock to a new high that ultimately failed.
A few weeks ago in a home building index post I had mentioned there was alot of buying in the home builders over the last few months. Notice how buying pressure exploded over the last few months. There's something very appealing about buying a stock with a PE of 3 or whatever home builders are trading at now. I would assume the general line of thinking is that with a PE of 3, how much lower could the price go. Unfortunately, not everyone has learned you don't get something for nothing very often. In other words, it's not a secret these stocks are trading on the cheap. If the savviest investors in the world aren't driving prices up, there's a pretty obvious reason.
Unless we see a change pretty quickly, all of that buying did nothing but create a bearish continuation pattern over the last few months. We could be getting ready for another dump. If the home building index breaks its 52 week low, we will likely see a downside acceleration in selling. Next we'll look at the Fed and what their actions may mean for the housing market.
The first thing to notice on the chart is the double top. Notice how buying pressure made a significantly lower top on the second price top. The best way I could describe this action is the smart money or conservative investors likely liquidated on the first peak and the underperforming mutual funds, retail investors, true believers and speculators likely reloaded in an attempt to push the stock to a new high that ultimately failed.
A few weeks ago in a home building index post I had mentioned there was alot of buying in the home builders over the last few months. Notice how buying pressure exploded over the last few months. There's something very appealing about buying a stock with a PE of 3 or whatever home builders are trading at now. I would assume the general line of thinking is that with a PE of 3, how much lower could the price go. Unfortunately, not everyone has learned you don't get something for nothing very often. In other words, it's not a secret these stocks are trading on the cheap. If the savviest investors in the world aren't driving prices up, there's a pretty obvious reason.
Unless we see a change pretty quickly, all of that buying did nothing but create a bearish continuation pattern over the last few months. We could be getting ready for another dump. If the home building index breaks its 52 week low, we will likely see a downside acceleration in selling. Next we'll look at the Fed and what their actions may mean for the housing market.
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