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Homebuilders Set to Resume Biggest U.S. Rally: Chart of the Day

Oct. 18 (Bloomberg) -- Homebuilding stocks are poised to break out of a monthlong holding pattern and extend the year’s biggest gains among U.S. shares, according to Justin Walters, a co-founder and managing partner at Bespoke Investment Group LLC.

As the CHART OF THE DAY shows, a Standard & Poor’s index of 11 builders has gained 86 percent, more than five times as much as the S&P 500. Yesterday, the industry gauge rose above this year’s intraday peak of 455.94, reached Sept. 21, before ending the day at 448.16.

The retreat left the index near the top of its 35-point closing range during the past five weeks. Any close this month that exceeds the September high will trigger further gains for the builders, Walters said yesterday in an interview.

“They’ve got all the momentum behind them right now,” the Harrison, New York-based analyst said. “People are willing to ride them higher,” especially as the housing industry shows signs of recovering, he said.

S&P’s builder index added 3.2 percent yesterday after the government said housing starts climbed 15 percent and building permits rose 12 percent in September. Both increases surpassed the average estimates of economists in a Bloomberg survey and resulted in the highest annual rates since July 2008.

“Sentiment was so depressed on the industry for so long” that the stocks have plenty of room for further gains, Walters said. Yesterday’s close for the industry gauge was 58 percent below its record, set in July 2005.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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