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Homebuilders are ready for a bounce

June 28, 2007

Babak at Trader's Narrative is cautiously optimistic on homebuilders. Considering the amount of negativity on them, they are primed for 20% plus bounce. I would look at taking positions in GFA, AVTR, BHS, NVR and some more at this levels. No guts, no glory. When there is blood on the street, sometime you find easy money.

If you think the financial sector has been roughed up, check out a long term chart for the homebuilders. They’ve gotten crushed.

Although it is always most difficult, it is rewarding to step in and buy when no one else is. Right now sentiment and the technicals have reached a crescendo of pessimism that usually signals an inflection point.

Take a look at the chart to the left. It is a survey from the National Association of Home Builders (NAHB) showing that only 28% of them see the housing market as “good or fair”. To put it in perspective, this is the lowest reading in 16 years. Very gloomy. Very doomy. Wouldn’t you say?

And there’s more. An economist with Moody’s economy.com wrote recently, “The bottom of the housing market appears nowhere in sight”. Ouch.

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