S&P 500 Homebuilders Index Review

A client recently asked us what we
thought of the homebuilders since the group has experienced a near 40%
correction from its recent peak.

This spawned a deeper inspection and thus
the attached pdf; a techncial look at the S&P 500 Homebuilders Index
(S5HOME) and KB Home (KBH) one of the more attractive looking names in the
group. 

Analyst sentiment is very negative on the group with 27 BUYS, 34 HOLDs and
11 SELLS collectively on the 5
companies
(CTX, DHI, LEN, KBH & TOL) that make up the
index

However, recently shares have stabilized and found some support
as downside momentum abated (and reversed up) while prices either fell lower or
re-tested recent lows.  This positive divergence between price and momentum can
typically be a precursor to a strong oversold bounce.   So at this point it
looks like the group could possibly be setting up for a counter trend rally that
may provide an intermediate term opportunity to capture some positive
return. 

As long as recent lows are not violated (a scenario where all bounce
bets would be off) this may set up as a favorable, albeit contrarian trade. 
Fundamentally it depends on where you fall along the spectrum;, a correction in
prices or a crash.

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  1. jkw commented on Oct 4

    Does 27 buys and 11 sells really count as “very negative?” Something is seriously wrong with the world of analysts when a 2:1 positive:negative ratio is considered very negative (I am assuming hold is a neutral rating). I guess I haven’t missed out on anything by never learning about broker ratings on stocks.

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