Along with the financials, the gains in homebuilding stocks have been another sign that the economy, slowly but more surely than many expected, is on the way back. And with many of those who have enjoyed the rallies in these stocks now starting to take profits, potential short-term opportunities for traders and active investors alike may await in any coming weakness.
Dropping by nearly 5% in Thurday’s session, the pullback in shares of Beazer Homes USA (NYSE: BZH) was easily among the sector’s most dramatic retreats. The selling reverses most of the stock’s previous two-day gains, and while BZH is trading near short-term lows, the stock is still significantly in neutral territory, underscoring its 6 out of 10 rating.
That said, Beazer Homes USA has a positive, short-term edge of just over 1% ahead of trading on Friday.
Lennar Corporation (NYSE: LEN) also had not yet finished in technically oversold territory, despite closing lower for three days in a row. With a positive edge of three-quarters of a percent, LEN earned a two-point ratings upgrade late in trading on Thursday, and is set to open Friday morning with “consider buying” ratings of 8 out of 10.
Shares of Lennar last earned “consider buying” ratings in late January. The stock gained more than one and a half percent after the first day, and was up more than 8% in just three days.
Also closing lower for a third consecutive trading day on Thursday, Pulte Homes Inc. (NYSE: PHM) lost almost 2% – though finishing well off session lows. As such, PHM has the smallest, positive edge of the homebuilding stocks in today’s report, earning a modest edge of just over half a percent. Pulte does share with Lennar a “consider buying” rating of 8 out of 10 and, like Lennar, responded swiftly and strongly the last time it earned a rating upgrade to “consider buying” status in late January.
Traders less interested in individual potential stock opportunities and more focused on the sector as a whole will want to keep an eye on the S&P Homebuilders SPDRS ETF (NYSE: XHB). XHB closed in oversold territory above the 200-day moving average on Wednesday and is up more than half a percent after Thursday’s session.
Coming Spring 2012: the second edition of How Markets Really Work: A Quantitative Guide to Stock Market Behavior by Larry Connors and Cesar Alvarez. Click here to learn more.
David Penn is Editor in Chief of TradingMarkets.com