Wednesday, April 26, 2006

Housing stocks

There's something bothering the stock market, and I can't but my finger on it. Is it rising interest rates? Maybe. Is it the weakening dollar? Possibly. But if I had to guess I'd guess it's the real estate/home building picture. Home building has been the "big kahuna," the launcher for the consumer-buying frenzy of the last few years.

Here's my thinking. If anything is wrong in home building, I think it would show up first in the action of the big home building stocks. Forget all those lagging statistics on home starts and mortgages applications and defaults, it's the home building giants that I'm watching.

A few weeks ago I noted that the home building stocks had completed a first decline but had then bounced higher. I said that I didn't like the looks of the home builders, but as long as they held above their first decline lows, I could not consider them in trouble. But now the picture might be changing -- but I don't hear anyone talking about it.

I'm showing daily chart of two of the leading home building giants, Ryland Group and Lennar Corp. RYL has declined to just above its preceding low of 64.83. The stock looks ready to top out, and anything below 64.83 will do it.

LEN has already broken under its preceding low at 55.17, and the stock has topped out as far as I'm concerned. These two stocks are typical of most of the stocks in the home building group. If the group is in the process of topping out, I have to think that this is an ominous message for the whole real estate/home building sector. And as this is the area that has bolstered the US consumer buying craze, well, it's something to think about, wouldn't you say?

Late note on the home builders. On news that existing home sales were up slightly in March, today the home building stocks popped higher. We'll see whether this is just a one-day news-related move or whether it's something more fundamental.


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