Homebuilder stocks are notoriously sensitive to interest-rate movements, particularly when the move is as knee-jerking as what we saw in May through early September. During that period, the yield on the 10-year Treasury (TNX) rose an amazing 140 basis points to nearly 3%.
As a result, the almost complete inverse picture of this can be seen on the charts of the homebuilder stocks, which topped in May and began a vicious slide into early September before bouncing moderately.
Looking at the charts of the homebuilders, I don’t see much to entice the bulls and think the bears will remain in charge … at least for a little while longer.
While many U.S. homebuilder stocks have similar charts, the price action of D.R. Horton (DHI) looks particularly weak. Bulls might want to stay away from DHI in the near-term, or at least until Nov. 12, when D.R. Horton earnings could give us some more clarity.
Looking at the multiyear chart, DHI earlier this year rallied into its 61.8% Fibonacci retracement level of the entire selloff from the stock’s 2005 peak into the late 2008 lows. The 61.8% area often times is the last and stickiest resistance area, so it’s no surprise that DHI has (thus far) found an insurmountable hurdle there.
I know: “Roses are red and violets are blue, but Serge, tell me what DHI’s future holds!”
The daily chart shows the heavy tone in which DHI has been trading since its year-to-date high in May. A series of lower highs and lower lows by late August brought the homebuilder stock back to a support level not seen since November 2012. The more often a level gets tested, the more powerful an eventual break of it, if and when it occurs.
Lateral support on DHI near $17.50 has been tested three times so far this year, and while I would not want to be caught short D.R. Horton unless a break thereof occurs, this isn’t a good area in which to buy DHI.
Wait-and-see, while not sexy, is an important portfolio tactic. Use it on DHI and other homebuilder stocks right now.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.