There may be hidden opportunity in the homebuilders, two traders say.
The whole group appears to have room to the downside, Matt Maley, chief market strategist at Miller Tabak, told CNBC’s “Trading Nation” on Tuesday.
He noticed that the ITB just had what chart analysts call an “outside week” — when a stock hits a higher high than the previous week’s high, a lower low than the previous week’s low and closing price below the previous week’s low.
“It’s a sign of exhaustion,” Maley said. “When you see outside weeks, it just shows you that the group has moved too far.”
“The group will come down. I think it’s got further to fall,” Maley said. “But longer term, it’s still a good play, in my opinion.”
“I think it’s priced to perfection and I think it’s going to get hit regardless of what they say,” Tatro said. Despite the better-than-expected earnings report Wednesday, the stock was down about 2%.
As for housing demand overall, he figured it “just stalled out a bit” because of rising input costs — which could allow investors to get into certain stocks at lower levels.
“That’s going to hurt these stocks in the short term, but I think this presents the opportunity,” Tatro said. “Investors need not really run away and hide from this group. I think there’s some incredible value here. And as these stocks come in, I think you’ve got to get your shopping list out.”
“I don’t think the data gets any better in the short term, but it’s 100% in my opinion due to input costs,” Tatro said. “That demand is still there and it’ll come roaring back and these opportunities will be there for investors.”