While the broader U.S. stock market yesterday remained flat for the day, there were significant pockets of weakness in important groups of stocks.  One such pocket was the home-builder stocks, which was led lower by Beazer Homes (BZH) after the company announced its fiscal fourth quarter earnings results.  The majority of home-builder stocks however don’t look nearly as weak as the chart of Beazer Homes (BZH).

In the below table note yesterday’s weakness in Beazer Homes (BZH) as well as that of twelve of the company’s closest competitors.

Ticker Name Chg Pct 1D
BZH US Equity BEAZER HOMES USA INC -17.2476
KBH US Equity KB HOME -6.500956
PHM US Equity PULTEGROUP INC -3.27381
LEN US Equity LENNAR CORP-A -4.539491
HOV US Equity HOVNANIAN ENTERPRISES-A -8.139535
SPF US Equity STANDARD PACIFIC CORP -5.097451
DHI US Equity DR HORTON INC -5.825243
TOL US Equity TOLL BROTHERS INC -3.626133
MTH US Equity MERITAGE HOMES CORP -2.825014
RYL US Equity RYLAND GROUP INC/THE -3.506187
NVR US Equity NVR INC -1.933733
MDC US Equity MDC HOLDINGS INC -4.38767
MHO US Equity M/I HOMES INC -7.152436

Attentive traders and investors noted weakness creeping into Beazer Homes (BZH) stock price as early as September.  As through the months of September and October most home-builder stocks either moved higher or sideways, BZH never recovered from its recent high on September 21st and subsequently started noticeably diverging from the rest of the pack.  This negative divergence should have been a warning sign to investors in Beazer Homes (BZH) going into yesterday’s quarterly earnings report.

The chart below compares Beazer Homes (BZH) to some of its closest competitor stocks. Beazer Homes (BZH) is the white line and its negative divergence versus the competitors is marked with the downward sloping red arrow.

In my opinion the best ETF to  track overall performance of U.S. home-building stocks is the iShares Dow Jones US Home Construction Index Fund (ITB).  This ETF sports a 63.50% allocation to home-builder stocks and with a 15 day average volume of 3.80 million shares also offers plenty of liquidity.

As a side note, the popular SPDR S&P Homebuilders ETF which many investors seem to use as a proxy to home-builder stocks only has an allocation of 26.73% to actual home-builder stocks, hence in my view not a great tacker of home-building stocks:

XHB – Top Sector Allocation
Home Builders    26.73%
Building Materials    25.15%
Retail    20.36%
Home Furnishings    12.74%

Looking at a chart of the iShares Dow Jones US Home Construction Index Fund (ITB) reveals that the very defined up-trend which started a little over one year ago still very much remains in tact.  Nothing is yet broken from a trend perspective although some more downside or around 3.00% to 5.00% is very possible.  The relative strength index is showing negative divergence, indicating the index is due for consolidation.  There are for now however no signs that home-builder stock charts as a group will entirely break, such as is the case with Beazer Homes (BZH).

In summary, both in relative and absolute terms, home-builder stocks as a group measured by the iShares Dow Jones US Home Construction Index Fund (ITB) are holding up well.  The broken chart of Beazer Homes (BZH) is an exception and not the rule when it comes to the health of home-builder stocks.

 

 

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