Morning Update - Homebuilders - HGX,KBH,BMHC,MTH,TOL, XHB

Good morning. This particular update will focus specifically on the Homebuilders. I want to cover this sector in more detail. First, I would like to point out that LEN, MTH, RYL,CTX, and BMHC are experiencing all time multi month high short interest. Consequently, this short interest will most likely propel these stocks higher.

The Housing Index - Philadelphia (HGX)
The Monthly chart of the HGX shows that it is in a neutral symmetrical triangle pattern. It is in a wave 3 to 4 pullback and looks to be completing an ABC. The HGX is in a bullish outside reversal, and in a bullish trend reversal on all time frames (Monthly, weekly, Daily). The decline from the all time highs has only been 8.19%. Anything that drops 8.19% is not in a bear market because it has not dropped more than 10% -15%, which means a bear market. It is only a pullback off the highs. Even though the fundamentals for this sector are rotten, the chart s look bullish. The monthly HGX chart shows that it is a failed topping pattern. Once we take out 272.50-273.00 we will have a full blown breakout. Once again, all indicators and oscillators are starting to turn up.

KB Home (KBH)
The daily chart of KBH shows that it appears to be forming a large ascending triangle. As with the HGX, it too is in a failed topping pattern. The chart also shows that it is finishing its wave 3 to 4 correction by completing an ABC pattern. Today it is up 5% at $67.82 and breaking out of it's recent downtrend channel. The following resistance points are: +4.1% at 70.6 strength 10, +8.9% at 73.87 strength 10, +12% at 75.99 strength 7, and 18.5% at 80.36 strength 3. The PPO has never really had any bearish divergence. The conservative short term price target is around $74 and perhaps higher should the HGX really move.

Building Materials Holding Corp. (BMHC)
The daily chart of BMHC illustrates that it is in a bullish wave 3 to 4 continuation wedge type pattern. The ABC is corrective, not impulsive. Confirmation of the breakout will occur around $38.00 The PPO is bullish and the stochastics are bull flagging. The conservative short term price target is around $40 and perhaps higher should the HGX really move. It still has a lot of down trend lines that have to be taken out.

Meritage Homes Corp. (MTH)
The daily chart of MTH has a conservative short term price target $65.00. Here you can see that the daily chart looks like a head and shoulders pattern. However it is a false pattern, because we never took out the neckline in the 57's. The most current pattern is a bullish falling wedge reversal. The Breakout point is $58.50. Medium term price target is at the 50% Fibonacci retracement level at $74.00.

Toll Brothers, Inc. (TOL)
The daily chart shows that TOL is in the process of trying to break out of it's recent downtrend channel. The pivot is $34.19 and the breakout point is $35.00. The indicators and oscillators are bullish and volume is expanding. The short term conservative price target is $38.00 within the next 30 days.

ST SPDR Homebuilders ETF (XHB)
The XHB recently IPO'd. The daily chart illustrates that it is in a Reverse Symmetrical Triangle pattern and wave E has yet to be put in. XHB is in a Bullish trend reversal and the chart looks very strong.