High Probability Bearish Signals Generated on 4 Homebuilders
The pandemic has changed the housing industry considerably in the past year. Consumers have changed their preferred living arrangements and that has created an increase in the demand for single-family homes.
Because of the increase in demand for homes, the stocks of homebuilders have rallied sharply since last March. The SPDR S&P Homebuilders ETF (XHB) was below $25 at its low in March and it recently moved above the $60 level. That is a huge move for an ETF. With such a big move, many of the stocks have moved in to overbought territory and we see that the weekly stochastic indicators for the XHB are in overbought territory. The 10-week RSI is close to being overbought, but isn’t quite there.
With so many homebuilders being overbought, I found it interesting that Tickeron’s AI Prediction Tool generated bearish signals on four different homebuilders on January 12. The predictions called for declines of at least 4% over the next month and all four had confidence levels over 80%.
The four stocks that received the bearish signals were D.R. Horton (DHI), LGI Homes (LGIH), Meritage Homes (MTH), and Toll Brothers (TOL). If we look at the fundamental screener from Tickeron, we see that three of the four stocks, all but LGI Homes, get poor scores in their Outlook Ratings. Three of the four also get poor ratings from their P/E Growth Rating with Toll Brothers being the only one that doesn’t get a bad score.
All four companies get neutral ratings in the SMR Ratings and the Price Growth Ratings. As you can see in the snapshot above, there are very few scores highlighted in green. D.R. Horton gets two, the Valuation Rating and the Profit vs. Risk Rating, and Toll Brothers and LGI Homes each get one positive rating.
The technical screener shows LGI Homes getting four bearish signals and only one bullish signal. Meritage Homes also gets four bearish signals, but it has three bullish signals as well.
Toll Brothers gets the best marks on the technical side with four bullish signals and two bearish signals. D.R. Horton shows three bullish signals and two bearish signals.
All four stocks have received bearish signals from the Aroon Indicator within the last few weeks. Three of the four have received bearish signals from the Momentum Indicator in the last 10 days and three of the four have received bearish signals from the moving averages.
These companies have benefitted from the change in consumer behavior, but it could be the bearish signals are suggesting that the stocks have rallied to the point that they have gotten ahead of the possible growth for the companies.
You can see a complete analysis and comparison for the companies from Tickeron’s artificial intelligence platform below.
Momentum Indicator for XHB turns negative, indicating new downward trend
XHB saw its Momentum Indicator move below the 0 level on October 22, 2024. This is an indication that the stock could be shifting in to a new downward move. Traders may want to consider selling the stock or exploring put options. Tickeron's A.I.dvisor looked at 87 similar instances where the indicator turned negative. In of the 87 cases, the stock moved further down in the following days. The odds of a decline are at .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Moving Average Convergence Divergence Histogram (MACD) for XHB turned negative on October 03, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 47 similar instances when the indicator turned negative. In of the 47 cases the stock turned lower in the days that followed. This puts the odds of success at .
XHB moved below its 50-day moving average on October 22, 2024 date and that indicates a change from an upward trend to a downward trend.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where XHB declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
Bullish Trend Analysis
The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 3 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where XHB advanced for three days, in of 334 cases, the price rose further within the following month. The odds of a continued upward trend are .
XHB may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
The Aroon Indicator entered an Uptrend today. In of 365 cases where XHB Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .
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Category ConsumerDiscretionary