“For Sale” Signs Abound Among Housing Stocks

Heading into the final trading day of the week, one area of newly oversold weakness in the stock market is in the home construction/homebuilding sector.

Both of the major exchange-traded funds that track this sector, the iShares Dow Jones US Home Construction Index Fund ETF (NYSE: ITB) and the S&P Homebuilders SPDRS ETF (NYSE: XHB), have closed lower for two days in a row and are now technically oversold above the 200-day moving average. With neutral ratings of 5 out of 10 and 6 out of 10, both ITB and XHB have positive edges of more than 1% in the short-term.

Looking deeper for individual stock weakness among those home construction and homebuilding stocks that are trading in bull market territory, we see stocks like Lennar Corporation (NYSE: LEN). Shares of Lennar have closed lower for four out of five days in addition to pulling back for two in a row as of Thursday’s finish, and are trading oversold at new, two-week lows after selling off by nearly two and three-quarters of a percent.

Shares of LEN earned a ratings upgrade early in trading on Thursday, bringing the stock within one point of our “consider buying” category. The stock has a short-term, positive edge of more than one and a half percent.

Other home construction and homebuilder stocks have pulled back, but are not yet technically oversold. Any selling in stocks like Beazer Homes USA (NYSE: BZH), which pulled back by well over three and a half percent on Thursday, as well as construction materials company Ryland Group (NYSE: RYL), down more than one percent and closing lower for two sessions in a row, will almost certainly send these stocks into oversold territory by the end of the week.

Technically oversold or not, shares of BZH did earn a two-point ratings upgrade on Thursday and will take their newly “consider buying” status into Friday’s session. Shares of Ryland Group have earned a 7 out of 10 rating ahead of Friday’s open. Both stocks have positive edges in the short-term of just over 1%.

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David Penn is Editor in Chief of TradingMarkets.com