Spring Thaw: Is The Housing Sector Ready To Move?

As winter's icy grip becomes a fading memory, is the housing sector ready to warm up? The homebuilder ETF (NYSE:XHB) may be giving a clue to that question.

Given that housing starts for April were up over 13 percent month-over-month, and new permits hit their highest level in nearly six years, the housing market may be starting to warm up as all four regions of the country reported increases.

Builders, meanwhile, have complained they are now dealing with higher material costs as well as labor shortages for skilled workers.

Looking at the chart below of the ETF for homebuilders and related companies, the downtrend starting in late February is evident. The trend line was broken to the upside last Friday on very high volume, suggesting a break of the downtrend.

A break of the 89 ema also occurred. The Macd indicator at the bottom is showing a positive divergence relative to the index, as it is slowly moving up as the index has moved down.

Several stocks that are breaking out in this area include: AO Smith (NYSE:AOS),PulteGroup (NYSE:PHM), Lennar (NYSE:LEN), DR Horton (NYSE:DHI) and Tempur Sealy (NYSE:TPX).

A few more are in a squeeze setup and waiting to break out.

A weekly chart of PulteGroup shows the stock in a tight range, a squeeze type setup trading through the 13 ema.

A daily chart shows a nice squeeze breakout on higher volume currently underway. Implied Volatility is very low, suggesting option premiums are cheap. This would imply an outright purchase of stock, call debit spreads or a long call position.

For those who believe the housing sector has turned the corner and is heading up going into the spring and summer months, these are a few stocks that may be worth more research.

Risk is always a factor in these setups, so size your tradesto your own personal risk tolerance.

(Charts courtesy of TC2000)