PowerRatings Sector Watch: Overbought Homebuilders Earn Major Downgrades
Update: Wednesday August 31. ^BZH^ pulling back by more than 3% intraday on Wednesday, ^SPF^ is off by more than 4%, and stocks like ^TOL^ are reversing from intraday highs. Here is our analysis on the homebuilding sector from earlier in the week.
Heading into trading on Monday, there are no stocks with PowerRatings of 9 or 10. Additionally, there are no exchange-traded funds that have earned PowerRatings of 9 or 10 ahead of Monday’s open.
One area where there may be quantified edges developing is in the homebuilding sector. Starting first with exchange-traded funds, we notice that two of the three U.S. domestic equity ETFs are sector funds representing homebuilders: the ^ITB^, and the ^XHB^ (below).
Both exchange-traded funds have earned PowerRatings downgrades to 2. This means that both funds are likely to underperform in the near term. It further means that the stocks in these sectors may be similarly vulnerable to selling over the next few days.
Examples of some of these stocks include ^RYL^. Shares of RYL have closed higher for four days in a row below the 200-day moving average, closing in overbought territory on Friday. This price action has earned the stock PowerRatings of 2 for the past two days heading into trading on Monday.
Also earning “consider avoiding” PowerRatings ahead of Monday’s open are such homebuilders as ^LEN^ and ^TOL^, both of which have earned downgrades to 2 after climbing into overbought territory below the 200-day moving average.
Perhaps most worth watching, though, will be ^BZH^ (above). Trading below $2, shares of Beazer Homes USA have closed higher for four days in a row below the 200-day and closed in overbought territory on Friday. BZH has earned our lowest PowerRating of 1, earnings its one-point downgrade after Friday’s gain of well over 5%.
Be sure to visit TradingMarkets.com for more quantified, top-to-bottom sector analysis using PowerRatings. To get a free, 7-day trial to PowerRatings, click here.
David Penn is Editor in Chief of TradingMarkets.com