KB Home (KBH) Sees Largest Trading Volume Ever After Earnings Release

After KB Home (KBH) reported a loss and spike in cancellations on Friday (3/23), the stock closed at $10.29, down 8.45%, on record trading volume (33.2 million shares). I glanced at the earnings release, and it looks like KBH is chugging along hoping that the housing recovery gains traction. From the KB Home Q1 earnings release, revenues during the quarter increased 29% to $254.6 million, but they still lost 45.8 million or 0.59 per share. Shareholders' equity was down 11% at 393.8 million, and its debt balance was at $1.59 billion, up $1 million. Cancellations rose during the quarter:

"Net orders totaled 1,197 in the first quarter of 2012, down 8% from 1,302 net orders in the year-earlier quarter, as a 22% increase in the Company's Central region was more than offset by decreases in each of the Company's three other regions. Though gross orders were up 3%, an increase in the cancellation rate to 36% from 29% in the year-earlier quarter led to the year-over-year decrease in net orders."

According to headlines, the cancellation rate was the reason why KBH tanked, and Business Insider noted that the CEO said it was due to problems with mortgage lenders. Since economists at Bank of America/Merrill Lynch believe home prices are bottoming, I'm going to start watching homebuilder stocks and ETFs. Some economists still believe home prices are headed lower.

The chart below shows the trend line that needs to break from 2008. If it breaks below $9.0, KBH could start trading between $5-9 again. It's not on the chart below, but it broke below the 50DMA (10.92) on Friday, and the 200DMA is at $8.35, which could be a support level (or bounce level) going forward. It all depends on home sales momentum and pricing going forward. In February, the U.S. Department of Commerce reported that new home sales (seasonally adjusted and preliminary) fell 1.6% to 313,000 from January, but was up 11.4% from February 2011. The median new home sales price was at $233,700, up 8.3% from $215,700 in January, and the months supply was at 5.8, down a whopping 25.6% from February 2011 (7.8). XHB, the S&P Homebuilders Index ETF, has been on a tear lately and took out the 2010 and 2011 ceilings. It started to decouple from KBH at the beginning of 2011, so keep an eye on that price spread. Distressed Hovnanian (HOV) is another interesting homebuilder to watch.

KBH - Source: Stockcharts.com

KBH and XHB - Source: Stockcharts.com

Oh, and there was interesting action in KBH puts. In the April $10 put, 19,773 contracts traded with 7,346 of open interest. Not sure if part of that was directional. It closed at 0.51. Also, in the May $9 put, 2,204 contracts traded with 153 open, and in the May $8 put, 2,732 contracts traded with 1,034 open. Some call strikes were active as well, but those stood out.