| Home building stocks peaked in July 2005 one year
before the housing market went into its slide. And these same stocks
will turn to the upside long before government and industry statistics
tell us that the housing downturn has ended.
So is now the time to buy the home builders? The chart pattern
for Toll Brothers, a typical looking pattern for many of the home
builders, may help answer the question. The first stage of a multi-year
upside began in March 2003 at $9 and ended 28 months later in July
2005 at $58. The stock is currently at $30, 22 months after it peaked.
The bullish case can be made because:
- For cyclical stocks downsides are often briefer than upsides.
- The stock is on a short-term upside.
- The stock has support at $20.
The bearish case can be made because:
- For cyclical stocks downsides are often the same length as upsides.
- The stock is still on a multi-year downside.
- Ultimate support is $10.
If you do not want to chance a single stock, you can own a basket
of home builders and related stocks with three low-fee exchange-traded
funds (ETF). The purest home builders play is iShares
Dow Jones U.S. Home Construction (ITB) which holds only home builders.
Related Articles:
Exchange-Traded
Funds
Homebuilding
Stocks
Price Patterns
- Resistance Levels Are Barriers to Price Upsides
Price Patterns
- Support Levels May Constrain Price Downsides
Posted May 25, 2007.
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