TradeStation

Has Lennar Laid the Foundation for a Breakout?

Long
NYSE:LEN   LENNAR CORP
Homebuilders have emerged as one of the standout industries in the post-Covid world. Plenty of technology names, like Zoom Video Communications, benefited from lockdowns. But it’s also boosted housing in a few ways. First, surveys show millennials finally want to buy single-family suburban homes. Second, interest rates are low. Third, credit-card spending data has shown DIY chains like Home Depot and Lowe’s thriving as most traditional retailers struggle.

Lennar is the No. 2 homebuilder by market cap (behind D.R. Horton ), and the most active in terms of average daily options volume . The company’s earnings and revenue both beat estimates last week. Perhaps more importantly, management had the confidence to reinstitute guidance. That prompted several analysts to raise their price targets.

LEN is in an interesting place technically after rallying sharply between mid-March and mid-May. It’s been consolidating above its 200-day simple moving average ( SMA ) and today is trying to make a higher low along a trendline starting in early April. Meanwhile resistance has remained around $65.50, resulting in a bullish ascending triangle .

LEN’s 50-day SMA is also moving up toward its 200-day SMA . That creates the potential for a “Golden Cross” within the next 10 sessions. It also had a bullish outside candle on the weekly chart (not shown) last week – a potential sign of “animal spirits in the house.”

It’s usually a good idea to wait for breakouts, but the fundamental argument for homebuilders is strong. Traders may want to enter with last week’s low as risk management and consider adding on a breakout through resistance.

Comments

Agree, very nice post.
+1 Reply
Nice job! Simple, logical and you nailed it. Good advice on waiting for breakout but if someone really wanted to, how to place orders to limit downside risk.
Reply
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