Are US Home Builders Putting In A Multi-Year Top?

Early this week, we noted how the weakness in housing starts was reflected in weaker lumber prices. While many commentators excused the weak housing starts data by blaming the weather (which no doubt affected it to some degree), there was a lone bright spot in the report if one looked at building permits. Unfortunately, the price action amongst US home builders seems to fall more in line with weaker housing starts rather than the stronger building permits.

Below we show the four stocks that make up the MSCI US Homebuilding sub-industry using our proprietary point and figure charts. Three out of the four stocks are in a precarious position. They are challenging an overhead resistance line that has been gaining strength over the past three years. If they should fail to break through to newer highs, that would be a significant knock against these stocks and could be an early sign that the trend in these stocks is changing from consolidation to underperformance. If you are invested in this sub-industry, you are hoping Lennar is a bellwether. It has recently broken out (barely) to new relative performance highs. However, it is much too early to tell if this is a true breakout or not. Given the chart formations of the other three stocks in the sub-industry, it would be surprising if Lennar can buck the trend and sustain its relative new highs.