Analysts Late in Calling Homebuilder's Downside

The homebuilding stocks peaked months ago but most analysts are only now downgrading the group (Note: upgrades and downgrades were taken from www.finance.yahoo). For example, Toll Brothers (TOL) peaked in July 2005, but only two analysts made timely calls to downgrade the stock just after it turned to the downside. Two analysts upgraded TOL after it was firmly on the downside only to see the stock continue to fall. Most other downgrades came well after TOL had peaked. Other homebuilders show similar patterns of analysts' upgrades and downgrades.

Rather than depending on the calls of professional analysts to spot turns in price, investors are better served reading charts and using technical tools such as the Price Direction Indicator (PDI). In May 2005 buyupside.com used PDI and price charts to caution investors that prices probably were peaking and on September 8, 2005 we called the end of the homebuilders upside in Home Builders Move to the Price Downside.

Posted June 7, 2006.