September 11th, 2008

Toll Bros. (TOL) and Homebuilders Revisted

Market’s really testing that neckline. Today’s low kissed the trendline before bouncing for a 1.4% gain. Sounds like a lot but the closing value of 1249.05 does nothing but confirm that, so far, the support has held.

I always seem to be ahead of the curve (maybe that’s were I am when I’m calling for a penetration of the neckline and a move to 1150 first and then to 920 on the S&P 500) but check out TOL (Toll Bros.). I first mentioned it on March 21 in “As the Market Bottoms, Toll Bros. (TOL)” when I wrote:

“So, in my opinion, the market is still signaling too much risk to begin buying aggressively. Having said that, last Saturday, I wrote that the Homebuilders Industry Group appeared surprisingly to be moving up in ranking and therefore a fertile area for the new market leaders. The Group was ranked is ranked 7th this week. Stocks in the group have held up relatively well since the middle of last year as the credit crises blossomed (true, these stocks are down 50-70% from their all-time highs). Toll Bros. (TOL) chart, a past Industry leader, demonstrates how the stocks performance has recently out-performed the averages and is forming a potential bottom.”

The stock has increased 8.4% since that close (vs. a 6.05% decline in the Index). Not a bad pick … wish I’d followed my advice and bought some.

But the key point is the reference to the home builders moving up in IBD’s Industry Group rankings. When you look at this past weekend rankings (see “Industry Groups on the Move“), homebuilders are no where in sight. In fact, the Industry Group has dropped to 87th rank. The take away from this example is that moving up in ranking in a horizontal market (a market with lots of rotation), doesn’t mean a sustained move up. You still have to look at the charts of the individual stocks and catch them as they make their moves out bases or consolidations.

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