After the sector tumbled on Thursday, she and manager John Buckingham were busy adding to their positions in Centex, Lennar, "If you were making a list of new stocks to buy now, these homebuilders certainly wouldn't be on that list," says Mais.īegging to differ is Jessica Chiaverini, a portfolio manager at the Prudent Speculator newsletter and Al Frank Asset Management. Steve Mais, an analyst with Sullivan, says there's no reason to ditch homebuilding stocks if you already own them, but no compelling reason for momentum investors to jump into them, as the group's relative strength is on the decline. Sullivan would sell on a break below $82.70 in Lennar, and $89.20 in Centex. In December for a 13% loss, but still owns Lennar and Centex. Sullivan uses relative strength in his stock selection process and picked up a trio of homebuilders during the past two months. Indeed, the chart patterns for the homebuilders don't do much for Dan Sullivan, editor of The Chartist. "All their charts show pretty descript double top formations." Seem to offer a clean three to five points of downside on this bounce," says Perry.
Perry says the "technical armor has cracked" on the builders and he says the oversold bounce provides a good opportunity to short a handful of big-name builders who may issue disappointing news in the weeks to come. Check out The Chartist's latest issue to find the stocks that continue to hit new highs. Steel to his portfolio of high relative-strength stocks. Special Offer: Strong as Steel? Dan Sullivan recently added U.S. New orders for 2003, however, were up 9% from 2002. That preliminary new orders for the fourth quarter are down 9% from the year-before level. The reason for the steep decline on Thursday was news from 3, when it hit its high of 371.52, but has since declined 4%. The index of 21 companies (mostly builders) broke through support at 360 on Wednesday then bounced off of its low of 345. On Friday afternoon, Bryan Perry, editor of ChangeWave ProTrader sent out a bearish hotline recommending buying puts on the Philadelphia Housing Index (HGX) at a strike price of 355.
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But now, a rising chorus of advisers is saying to avoid the homebuilders, while more aggressive traders are recommending short positions in the sector. And then they defied gravity, rallying to new highs early in December. Even after the disappointment in June over the Federal Reserve's refusal to cut the Fed Funds Rate below 1%, homebuilders defied conventional wisdom that higher rates down the road would hurt sales. Last January would have been a lousy time to short homebuilders.
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