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Homebuilder Breadth


I *think* that looks OK.


Trying to pick a top in the homebuilding stocks has been an effort in futility as the group continually makes new high after new high. Surely some of the recent data points are troubling, such as Phil mentioning insider selling in Buzz & Banter today.

What I think is interesting is that most homebuilders are still holding up well, despite some deep pullbacks over the last couple of months. The chart below shows the S&P Homebuilders Index on the top pane. The bottom pane shows the percentage of homebuilding stocks currently trading above their 200-day moving average. As of yesterday, the reading was 77%.

The other times in the past few years that the group as a whole has undergone as deep a correction as the current one, the percentage of stocks above their long-term average dropped down below 60% at least. But when you look at the indicator, look at the higher lows it has been making - when the group corrects, fewer and fewer stocks have been dropping below their 200-day averages.

In 2002 and 2003, the percentage got below 20%; in 2004, it only got down to 35%; so far in 2005, the lowest percentage has been 55%. During the latest correction, the lowest percentage we saw above their 200-day average was 70%.

This could mean a couple of things - either most of the stocks are so far above their averages that moderate corrections aren't bringing them far enough to drop below their 200-day, or the drops in some of the indexes are being masked by a few large stocks while most of the rest of them are holding up well (or a combination of both of course).

No positions in stocks mentioned.

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