Sizing Up Homebuilding Stocks - Is It Time to Buy?

The major home builders are on the downside of a price cycle that began in 2000 and peaked at all-time highs in mid 2005. Many of the home builders are down more than fifty percent from their peaks. So should investors be nibbling at these stocks? The answer depends on how much further you think they will decline.

One way to measure the progression of the downside is to compare a stock's current price with the peak price of its previous price cycle, which is a key technical support level for the downside of the current cycle. Simply compute the percentage decline from the current price to the peak price of the previous cycle.

The price chart of Centex (CTX) shows a possible 43 percent decline (red dashed line) from the current price to the key support level at the peak price of the previous price cycle. This is not to infer that CTX will fall another 43 percent, but this measure can be used to compare potential further declines among many stocks. Also note the classic head and shoulders formation with its left (LS) and right (RS) shoulders. Currently CTX has support at the neckline of the head and shoulders pattern.

If you want to nibble at the homebuilders, examine the following table of twelve major homebuilders to see which stocks are nearest the key support level defined by the peak of the previous price cycle. The stocks with the lowest percentage declines are the ones to nibble at first.

Of twelve major homebuilders Centex, Lennar and Standard Pacific are the nearest to the peak of their previous price cycles. Ryland Group and Meritage Homes are the furthest away.

Related Articles:

Homebuilding Stocks
Price Patterns - Head and Shoulders Top Is a Complex Pattern
Price Patterns - Support Levels May Constrain Price Downsides

Posted June 27, 2007.

Home | Making Money | Portfolios | Dividends | Retirement | Articles | Charts | Stocks | Tables