Real Money Charts (March 25, 2008)
Today we’ll look at the homebuilders — a sector that has received tremendous attention lately: TOL, MTH, KBH, HOV, MDC and LEN.
This weekly chart of TOL shows how the bulls have consistently struggled with $23 for quite a while. But we’re finally seeing some headway as the stock rallied to its highest level since last summer. While I think the stock is too overextended to buy now, if you want to own TOL, I’d suggest waiting for a pullback to around $20 before buying.
MTH is forming a really sloppy Head and Shoulders pattern. I’ve indicated where the “shoulders” are…but let’s face it, the real story here is a capitulation selloff in late December and early January. Now, the stock has poked up above resistance and looks poised to start an uptrend. As a staunch bear on this industry group, I’m having a tough time accepting that we’ve seen the bottom. But this chart knows a heck of a lot more than I do — and the chart is looking bullish. I’d be a buyer on pullbacks.
Notice how KBH is now consistently above the middle Bollinger Band (the 20-week moving average). But with the stock tagging the upper Bollinger Band and nearing prior resistance, I just wouldn’t be buying now. Instead, I’d wait for a pullback to the low $20’s before dipping a toe in the water.
This weekly chart of HOV looks a heck of a lot like the KBH chart, except that this week is hitting a new high for the year. Still, I’d be a buyer of HOV, but only on a pullback.
Of all these stocks, MDC probably has the best balance sheet because it’s not choking on a bunch of overpriced land that nobody wants. So as the market improves over the next 6 months, MDC just could be an outperformer. But let’s not jump the gun. The stock has run more than 20% in two days. Give it a chance to rest before buying.
LEN is just peeking above the middle Bollinger Band and is struggling with a key resistance level at $20. If the stock can grind above $20, it’s probably got a chance of moving higher. But the stock is up more than 30% in two days. Don’t you think it’s best to just step aside and let the stock either run without you…or pull back so you can buy it cheaper?
Be careful out there.