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Actionable news in PHM: PULTEGROUP Inc,

Homebuilder Stocks Lag as Industry Remains Below Potential

Homebuilders DR Horton (DHI) , KB Home (KBH) and Pulte Group (PHM) have positive but overbought weekly charts, while Lennar (LEN) has a positive chart and Toll Brothers (TOL) has a neutral weekly chart. Getting to this current status follows an 11-year volatile ride from bubble peaks, to the question of survival.

Let's take a look at history, then explain how to trade these stocks now.

Homebuilder stocks should not be considered long-term investments due to the extreme up and down share price volatility investors have experienced for more than 10 years. Volatility can be traded, however, and the weekly charts below feature the Fibonacci retracements from the housing bubble peaks set for each stock in July 2005 to stock-crash lows set between November 2008 and October 2011.

Before drilling down through the details, beware that two of these stocks are schedule to report second-quarter earnings before the opening bell on Thursday. DR Horton is expected to earn 66 cents a share and Pulte Group is expected to earn 33 cents a share.

The National Association of Home Builders Housing Market Index slipped a point to a reading of 59 in July. Sentiment readings have been steady for the last six months and the NAHB views this as continuing a gradual housing recovery. However, commentary from the...