Today existing home sales plunged lower by more than 27 percent in the month of July. This is very bearish news by any account, however, the home-builder stocks rallied higher. Usually when stocks rally during very bad news this is a bullish sign. However, the home-builder stocks have a habit of doing this. If you look at a daily chart of any home-builder stock since the late April highs you will notice the home-builders seem to catch a bid after bad news. This bounce higher in the home-builder stocks does not usually last very long.
This morning Toll Brothers Inc. (NYSE:TOL), and Lennar Corp. (NYSE:LEN) both rallied after the negative existing home sales news. These leading home-builder stocks have held the gains throughout the day despite the weakness in the major stock indexes. Please note that most of the home-builder stocks did make new lows for the year today. Often a new low in the market will trigger short covering and a short term bounce as many traders and investors buy back in and cover their short positions. Therefore, don’t expect this bounce in the home-builder sector to last too long if recent history plays out again. These stocks could see new lows in the near future.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks
