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Homebuilder benefit from lack of supply\?

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The Dow Jones Home Construction Index (DJUSHB) 380.83 +2.84% is leading the sector gainers list today on the heels of strong earnings out of Pulte Homes (NYSE:PHM) $53.43 +2.63% and Centex (NYSE:CTX) $57.12 +3.81%. In recent weeks we've seen some powerful moves come from some healthcare sectors after breaking to new highs when lack of supply met with buying and driven prices higher still.

DJ US Home Construction Index Chart - Daily Interval

The DJUSHB has broken to a new 52-week high and homebuilder bulls are looking aggressive in the sector. The upward trending regression channel gives bulls a near-term target of $415 (will move higher with each passing day).

Toll Brothers Chart - Daily Interval

Shares of recently profiled Toll Brothers (TOL) are trading strong today as other stocks in the group report earnings above expectations. Toll Brothers (TOL) is expected to report earnings of $0.50 a share on May 29th, which is still over a month away.

Tomorrow at 10:00 AM EST, traders will get a look at New Home Sales for March. Economists are looking for a number of 890K, which would be higher than the previously reported 875K. With strong earnings in the homebuilders of late, it looks like bulls are now baking some strong expectations into tomorrow's economic data.

Technical note: There are a lot of homebuilders stocks that are just breaking above the mid-points of their regression channels and look as if they are good bullish plays. While we would expect resistance at the upper ends of the channels, last week we did see the HMO Index (HMO.X) and some healthcare stocks blow through the upper ends of their regression channels. You just never know for sure what can happen when overhead supply is exhausted.

Jeff Bailey
Senior Market Technician
Option Investor

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