Stock Trading Methods: How to Trade Six Homebuilders as Housing Market Remains Subdued

NEW YORK (TheStreet) -- Investors who are interested in stocks of homebuilders and who may be trying to make sense of tepid housing-market numbers can use the guidelines below for suggestions on how to trade the shares of six prominent homebuilders. The National Association of Home Builder Housing Market Index has gained three points in April to 56, while single-family housing stocks gained a seasonally adjusted 4.4% to a subdued annual rate of 618,000 units in March. Must Read: Warren Buffett's Top 10 Dividend Stocks Meanwhile, the PHLX Housing Sector Index continues to outperform the stock market with a year-to-date gain of 7%, versus just 1.1% for the Standard & Poor's 500 Index. Among the six homebuilder stocks I follow, four are outperforming the housing index year to date. Ryland Group , which is up 22%, will put its gains on the line with a scheduled earnings release on April 30. Tied for second place with gains of 12% are D.R. Horton and Toll Brothers . D.R. Horton is scheduled to report its quarterly results on April 22. In fourth place is Lennar , which is up 8.4% year to date. PulteGroup is underperforming, with a gain of 3.4%; it's scheduled to report its quarterly earnings on April 23. KB Home is the lone loser, down 5.6% year to date. Before profiling the performance measures for the six homebuilders, let's look at the key housing data which signal the challenges for the housing industry. The above graph shows the National Association of Home Builders, Housing Market Index versus single-family housing starts. The HMI (in blue with its scale on the left of the graph) shows the rise of three points to 56 in April. The index has been above the neutral reading of 50 for 10 consecutive months. The NAHB indicates that homebuilders are confident that low interest rates and consistent job growth will help sales during the spring buying season. Seasonally adjusted single-family housing starts (in red with its scale at the right of the graph) rose by 4.4% in March to an annual rate of 618,000 units, but the graph above will not show this data point until next month. Single-family housing starts remain well below the normal annual rate of 1.1 million to 1.2 million units. Must Read: 10 New Stocks Billionaire David Einhorn Loves Here's the weekly chart for the Housing Sector Index Courtesy of MetaStock Xenith The housing index closed 230.52 on Friday, just below its key weekly moving average of 230.52, with a momentum reading of 87.77 versus 88.98 on April 10. The weekly chart will shift to negative on April 24 given a close below 230.52 and with momentum declining below the overbought threshold of 80.00. The housing sector index includes 19 stocks, 11 of which are homebuilders, including the six profiled today, plus eight other companies that provide products and services supporting the housing industry. Here are the performance measures and how to trade these stocks as volatility continues. D.R. Horton closed $28.27 on Friday, and is above its 50-day and 200-day simple moving averages of $27.33 and $24.07, respectively. The weekly chart is positive but overbought with the stock above its key weekly moving average of $27.54. The 200-week simple moving average is $19.71. Investors looking to buy D.R. Horton should place a good-till-canceled limit order to purchase the stock if it drops to $22.82, which is a key level on technical charts until the end of June. Investors looking to book profits should place a good-till-canceled limit order to sell the stock if it rises to $30.06, which is a key level on technical charts until the end of June. KB Home closed $15.63 on Friday. The stock is trading between its 50-day simple moving average of $14.55 and its 200-week simple moving average of $15.75. The weekly chart shifts is positive with the stock above its key weekly moving average of $15.10 and its 200-week simple moving average of $14.49. Investors looking to buy KB Home should place a good-till-canceled limit order to purchase the stock if it drops to $12.53, which is a key level on technical charts until the end of June. Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $16.91, which is a key level on technical charts until the end of June. Lennar closed $48.58 on Friday, and is below its 50-day simple moving average of $49.99 and above its 200-day simple moving averages of $43.84. The weekly chart will shift to negative if the stock ends this week below its key weekly moving average of $49.63 and if the momentum reading, which is now at 81.01, declines below the overbought threshold of 80.00, which appears likely. The 200-week simple moving average is $34.39. Investors looking to buy Lennar should place a good-till-canceled limit order to purchase the stock if it drops to $42.93, which is a key level on technical charts until the end of June. Investors looking to book profits should place a good-till-canceled limit order to sell the stock if it rises to $56.20, which is a key level on technical charts until the end of June. Must Read: 16 Rock-Solid Dividend Stocks With 50 Years of Increasing Dividends and Market-Beating Performance PulteGroup closed $22.19 on Friday, and is above its 50-day and 200-day simple moving averages of $22.13 and $20.30, respectively. The weekly chart is positive with the stock above its key weekly moving average of $22.05. The 200-week simple moving average is $15.62. Investors looking to buy Pulte should place a good-till-canceled limit order to purchase the stock if it drops to $19.49, which is a key level on technical charts until the end of June. Investors looking to reduce holdings should place a good-till-canceled limit order to sell the stock if it rises to $25.12, which is a key level on technical charts until the end of June. Ryland Group closed $47.06 on Friday, and is above its 50-day and 200-day simple moving averages of $46.13 and $38.99, respectively. The weekly chart is positive but overbought with the stock above its key weekly moving average of $46.36. The 200-week simple moving average is $32.37. Investors looking to buy Ryland should place a good-till-canceled limit order to purchase the stock if it drops to $41.20, which is a key level on technical charts until the end of June. Investors looking to book profits should place a good-till-canceled limit order to sell the stock if it rises to $53.60, which is a key level on technical charts until the end of June. Toll Brothers closed $38.35 on Friday, and is above its 50-day and 200-day simple moving averages of $38.24 and $34.73, respectively. The weekly chart is positive but overbought with the stock above its key weekly moving average of $38.30. The 200-week simple moving average is $30.70. Investors looking to buy Toll Brothers should place a good-till-canceled limit order to purchase the stock if it drops to $36.64, which is a key level on technical charts until the end of June. Investors looking to book profits should place a good-till-canceled limit order to sell the stock if it rises to $43.35, which is a key level on technical charts until the end of June. Must Read: Bank of America’s 10 Top S&P 500 Stocks to Buy for 2015

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