Good comments, I agree that every inverstor has their own criteria and no one system is foolproof. However, a couple points that make it clear for me:
– Bring up the 5 year chart on any larger homebuilder and you’ll see that the price explosion occured almost exactly in sync with the current real estate boom starting in 2001. This is not a coincidence, and it is reasonable to think that the way back down will also be propotional.
– The major homebuilders prices peaked in July of 05 and have been steadily dropping since. The momentum is clearly negative as most homebuilders are solidly below the 200 day moving average. I look at trends more than earnings and the trends are clear. There may well be multiple dead cat bounces along the way but I am concerned with the long term.
– Most homebuilders have relatively low P/Es right now but that is immaterial. The market trades based on future earnings potential and expectations and the future earnings prospects look very bleak for homebuilders. The negative numbers are just starting to come in and will only get worse.
