D.R. Horton, Inc.: It’s Tough Bricks for DHI Stock

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Shares of homebuilding company D.R. Horton, Inc. (NYSE:DHI) rallied on Thursday after the company reported its its fiscal first-quarter results. Although the company beat analyst expectations on most fronts and even raised guidance, DHI stock closed well off its intraday highs and thus may have signaled some buyer exhaustion.

Beat the BellActive investors and traders may find a trade setting up to the short side.

Specifically for its first quarter, D.R. Horton reported earnings of 52 cents per share on $2.7 billion in revenues, which beat respective estimates of 47 cents per share on $2.69 billion. DHi also raised its profit margin forecast.

All of this led to a good rally — at least for the first 90 minutes of the day — before it began to deflate.

Housing stocks as a theme have fully recovered their steep losses from the January/February selling spree and broken past a plethora of technical resistance areas. While it has been a good run for the housing stocks since February, much like the broader market, these stocks are now overbought. The risk-reward of chasing them higher at these levels is weak.

DHI Stock Charts

For some perspective, let’s look at the multiyear weekly chart of DHI stock. At the February lows, D.R. Horton once again bounced off its multiyear support line. Although from a longer-term momentum perspective, the stock is not very overbought, in the nearer-term, we note that this bounce since February has been one of the steepest in the stock’s history.

The bulls would like to see some sideways consolidation so another base can build, from which DHI could jump higher. The bears, however, are mindful that ultra-sharp rallies such as this are prone to at least some retracement lower before resuming.

DHI stock weekly chart
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On the daily chart, we see that D.R. Horton, from its February lows to Wednesday’s intraday highs, rallied more than 40% — an awfully steep move in just a little more than two months.

Note that while the MACD oscillator at the bottom of the chart topped in mid-March, price continued to push higher, flashing some negative divergence that confirms weakening upside momentum.

Through the lens of investor psychology. Thursday’s price action saw the bulls give the stock one more push higher after earnings, but while DHI did finish up for the day, it was well off the intraday highs, signaling at least near-term buyer exhaustion.

DHI stock daily
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From here, active investors and traders could look to leg into partial short positions or buy cheap puts upon a selling confirmation day which sees the stock close below $31.40 on a daily closing basis. A first price target then becomes $29.50 on the downside.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/d-r-horton-inc-dhi-stock-bricks/.

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