Homebuilder Stocks - RYL TOL XHB MTH 013007

It’s been a week since I last visited the Homebuilder stocks, when I sold into the gaps of RYL and TOL. A reader asked me what I thought of RYL in the short-term, and it looks like the right time to revisit the sector.

The gaps in both stocks came out of a 1 1/2 month downtrend. Popping out of that pattern was expected. RYL did form a double top around 57.30, so the bulls didn’t have the strength to push through the previous high of 57.38. The stock has pulled back now, and volume is drying up each day. The uptrend is still intact, and holding it’s 20 and 50 day averages.

What I would look for is the 20 day average (yellow) touching the 50dma (red), and the stock moving higher. You’ve got two areas of support at the pivot lows near 51 and 52.5. They may take some stops out first by dipping under the trendline. They could also be done taking the stock back. A half lot could be bought on strength over today’s high, and the second added on a break over the double top. Just a few scenarios. Still looks bullish to me. Wait for a pattern to enter.

TOL could put in a buy signal tomorrow. It’s also a NR7. I prefer the pattern on TOL. Volume drying up there too. XHB is the same. The 20day average is kissing the 50-day there. They both look good over today’s high.

One stock in the Homebuilders sector I would avoid is MTH. When a stock isn’t following others in the sector, it’s a red flag. I watched the interview on Wallstrip with the CEO of MTH. He sure makes it sound good. I just gotta ask myself, is that a head and shoulders formation that’s ready to take MTH down to 35? If it breaks that support, it looks like a short to me.