24/7 Wall St.

If you have been watching homebuilders of late, you’ll notice a sharp disconnect between the headlines still coming out and the stock prices of many homebuilders.  The move today is partly attributed to Sam Zell’s interview on CNBC saying this spring should mark the bottom in housing.  The SPDR S&P Homebuilders (AMEX: XHB) ETF shares are up 6.3% at $22.56 today, and its 52-week low is $15.22.

Keep in mind that Zell has that Gafisa SA (NYSE: GFA) as one of his big plays in Brazil, which we recently noted as one of Jim Cramer’s top picks in Brazil.  We have also noted how many of these stocks had doubled from lows.  Banc of America recently was the first to upgrade several of these in the homebuilder sector as well.

Today, shares of these are up big, which you can see in comparison to their 52-week lows:

Stock/Symbol          Trade    Change    52-wk Range   Market Cap   
DR Horton (DHI)    $16.44    +6.06%    $9.78-27.26    $5.18B   
Toll Bros (TOL)      $23.24    +6.02%    $15.49-32.00   $3.68B   
Lennar (LEN)         $20.40    +8.63%    $11.98-51.43   $3.26B   
Centex (CTX)          $26.10    +9.53%    $17.77-49.85   $3.19B   
Hovnanian (HOV)  $10.91    +10.20%   $4.25-33.32    $679.76M   
Beazer (BZH)         $8.74       +12.48%   $4.53-42.42    $342.68M

We have noted over and over that this sector would bottom and start to recover long before the news starts to look like anything resembling good news.  That may or may not be now, but when you see an ETF recover 50% from lows you have to wonder how much worse things would have to get for that recovery to not at least partially hold up. At one point, things were getting so bad we even asked "which would hit zero first?"

We still expect more bad headlines with no end in clear site.  But a 50% recovery in an ETF that measures a sector has to be telling you something, even if there will be more bad days on and off and even as more headlines still look bad.

Jon C. Ogg
February 26, 2008