Home Builders Move to the Price Downside

Stock prices of most home builders have been on the upside since January 2000. But the bubble has burst and their stock prices are on the downside. In May 2005, July 2005 and August 2005 buyupside.com cautioned investors about the high prices of these stocks. Now that prices are on the downside, prudent investors should avoid them.

The chart for Hovnanian Enterprises (HOV), a builder of high-end homes, shows the story. After a very sharp price rise beginning in May 2005, the stock peaked at $73.19 on July 20, 2005 and closed at $57.49 on September 8, 2005.

The Price Direction Indicator (PDI) peaked on August 4, 2005 and its three components (cumulative percent winners, cumulative returns and return per day) are on the downside.