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Strong Homes Sales Give a Bounce to Builders

David Becker
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www.iforex.com
Strong Homes Sales Give a Bounce to Builders

A bigger than expected rise in April new home sales gave a big boost to homebuilding stocks during the latter part of last week. The Dow Jones U.S. Home Construction iShares (NYSEARCA:ITB) shot up more than 2% on Friday to end the week above its 50-day moving average. The ITB recently also found support near its 200-day moving average.

New home sales rose 6.4% in April, according to the commerce department, offering further evidence that the housing market gained some momentum as spring took hold. Combined with a big upward revision in the March sales estimate, the government’s latest data indicates the market for new homes has been better than economists estimated. The commerce department reported sales reached an annual rate of 433,000 and March’s results were revised up to 407,000. The previous March estimate was 384,000. Economists expected a rate of 425,000.

Specific housing stocks received a strong boost. DR Horton (NYSE:DHI) jumped 4% on Friday on robust volume, which put the stock at the highest closing level in two months. Its relative strength line also turned up, reflecting accelerating positive momentum. Lennar (NYSE:LEN) gaining 3.9% on rising volume as well. Its relative strength line also turned higher. The fact that both stocks found support along the highs of last autumn is also encouraging.

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The ITB sliced through resistance near the 50-day moving average and is poised to test the April highs near 25.25. Support is seen near 23.79 (which is the 50-day moving average), and then again at the 200-day moving average near 23.26.

Momentum on the ETF is strong as the MACD (moving average convergence divergence) generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.

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