With bullish sentiment on the homebuilders uncomfortably high and volume not supporting the recent highs, now is clearly not the time to buy...but using technical analysis, we can determine the levels at which a pullback will create better buying opportunities. There was plenty of new data on the housing sector this week, and the latest new-home sales figures will come out later today. The consensus view is that there will be 325,000 newly constructed homes with a committed sale in February. Sentiment on housing stocks has certainly changed over the past five months, as the consensus view now seems to be that the housing market has bottomed. The fundamental data has improved sharply in 2012, causing one analyst to write on Monday that it is "an ideal time to load up on housing stocks." Last fall, the tone was quite different. On October 21, one headline read, "The Housing Sector Is a Mess," and in the story, the author cast doubt on the recent surge in housing starts, suggesting things were only going to get worse. Then in early November, after the latest S&P/Case-Shiller data reported a 3.6% drop in housing prices, one analyst said, "Housing probably won't go anywhere for the next several years." At the time, the technical picture for the housing stocks was quite positive. This is another good example of how the technical action leads the fundamental data. Now, the daily technical action of the homebuilders suggests a further correction is likely before the intermediate uptrend resumes. In a late February Trading Lesson, "Don't Miss Another Big Rally," I shared some suggestions about how not to get caught up in buying frenzies, and I used the housing sector as one example. Now that it appears that the homebuilders are completing their daily top formations, we can start to target the price levels for new buying.

pubblicato il: 23/03/2012 - 23:47