It’s a big week for US homebuilders, with earnings reports that should confirm the positive impact of falling interest rates. Miami-based Lennar Corp (LEN) kicked things off with a bang on Tuesday morning, trading higher after beating second quarter earnings and revenue estimates. Their conference call is scheduled for 11:00am EDT, with management likely to disclose details about demand and inventory expectations for the rest of 2019.
KB Home (KBH) follows with second quarter earnings after Wednesday’s closing bell, when the California builder is expected to report $0.38 in profits on $932-million in revenues. The stock rallied to a 6-month high on March 27th after beating first quarter profit estimates and missing revenues. Price action has drifted down to that price level once again, after topping out a few points higher in May.
iShares Dow Jones US Home Construction Index Fund ETF (ITB) came public at 48.62 in May 2006 and posted an all-time high above 50 in that session, ahead of a downtrend that accelerated during the 2008 economic collapse. It bottomed out at 6.33 in March 2009 and turned higher, stalling in the mid-20s in 2013. The fund added fewer than four points into the 2016 presidential election and took off in a trend advance that ended within four points of the 2006 high in early 2018.
The subsequent decline relinquished nearly 40% of the fund’s value into December, ahead of a proportional bounce that’s stalled at the .618 Fibonacci selloff retracement level. The monthly Stochastics oscillator is still engaged in a buy cycle that reached the overbought level in April, marking a position that’s favorable for even higher prices in coming weeks. Even so, accumulation has lagged badly so far in 2019, with investors sitting on their hand, waiting for more positive catalysts.
Lennar ended a multiyear uptrend in the upper 60s in 2005 and completed a head and shoulders breakdown two years later. It plunged to a 13-year low in single digits in December 2008 and turned higher into the new decade, stalling in the low 20s. That level marked resistance into a 2011 breakout that posted healthy returns into January 2018 when the stock reversed just four points above the 2005 peak.
The stock got cut in half during the second half swoon, finding support in December at the February 2016 low in the mid-30s.. The bounce into 2019 stalled at the 50% selloff retracement level in the mid-50s in March, yielding two failed breakout attempts into this week’s confessional. Lennar rallied about 20-cents above the 2019 high after the news but has drifting lower into the opening bell and remains rangebound, at least for now.
KB Home shot higher in 1997, clearing long-term resistance in the low teens. It posted modest gains into 1998, topping out at 17.50, and sold off to 8.56 a few months later. The stock tested that support level twice into 2000 and took off in an historic trend advance that continued into the September 2005 all-time high at 85.45. It surrendered 100% of those gains during the 2008 economic collapse, dumping to an 11-year low at 6.90, and broke that trading floor in 2011.
The stock bottomed out at 5.02 and bounced into 2013, topping out in the mid-20s. That marked resistance for the next four years, ahead of a 2017 breakout that hit a 10-year high in the upper 30s in January 2018. The decline into December found support at the 200-month EMA, yielding a 2019 uptick that stalled at the .382 Fibonacci selloff retracement level in May. Unlike Lennar or the homebuilding fund, monthly relative strength indicators have rolled over, predicting a sell-the-news reaction to this week’s earnings report.
The Bottom Line
Key homebuilder reports this week should reveal a healthy uptick in new home sales, driven by lower interest rates.
Disclosure: the author held no positions in aforementioned securities at the time of publication.