Why I’m Buying Homebuilder Stocks Like MTH Here

Is it time to start buying the Homebuilder stocks? If you check out the monthly chart for MTH - Meritage Homes Corporation, it’s indicative of what’s happened to the housing sector over the past five years. The same applies for symbols on my screen… TOL, RYL, KBH, and LEN. XHB, the SPDR Homebuilders ETF hasn’t traded as long as the others, but is one way to now stay diversified in the sector.

The housing boom took homebuilder stocks like MTH up to all-time highs in a stage 2 advance. There was a stage 3 top, followed by the stage 4 decline. It now seems we’ve entered the stage 1 basing period, where the stocks have to fight for some supporting action. (There’s a good discussion of stages in Weinsteins book.)

Let’s move down to a shorter time frame on the daily chart to see how MTH is doing. You can see the stock has broken out of a triple top in the last week, and is now trading above it’s 200 daily moving average. There was an increase in volume on that breakout, and the stock has pulled back a few days.

Let’s go down to the 5-minute chart. After the pivot low this morning, MTH put in a trend change buy signal with a trading pattern I use all the time. That’s a first entry. The stock gives another entry, after a small pullback and break of that pivot high. It’s now stalling at the day’s high as it should.

We’re not out of the woods yet, but this type of price action on smaller times is what eventually sets up buy signals on the larger time frame charts.. weekly and monthly.