As I was scanning the markets today with the Trending123 Pattern Scan powered by Recognia, I noticed something interesting going on with homebuilders–three big dogs in the space were all setting up with bullish patterns, but over different time horizons. So whether you want to see profits within a few days or you’re content to wait it out, these names offer some intriguing opportunities.
So let’s dig into the patterns and how to know when the breakout is confirmed. As always, the amount of time a pattern takes to develop is an indicator of how long it will take to play out fully.
Short-Term Bullish – Two to Six Weeks
The price seems to be resuming a sharp rally after taking a brief pause. A bullish pennant pattern occurs during a dynamic market rally like we’ve been seeing with the market’s repeated new highs. The pattern represents a brief period of indecision before running upward again. The pattern consists of two converging trend lines with diminishing volume, and is confirmed when the price breaks through the upper boundary to resume the advance.
Recommendation: Buy DHI for a $32.00 – $33.25 target.
Intermediate-Term Bullish – Six Weeks to Nine Months
An upside breakout is pretty self-explanatory–the price broke upward out of a trading range, suggesting we’re entering a new uptrend. The pattern represents a trading range in which prices move sideways between two parallel horizontal lines. It’s often a pause or congestion area within an existing trend though sometimes the breakout results in a reversal to the prior trend. Either way, an upside breakout through the upper resistance line signals an end to the consolidation period and the start of an uptrend.
Recommendation: Buy PHM for a $25.40 – $26.30 target.
Long-Term Bullish – More than Nine Months
The price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend. The pattern begins during a downtrend as prices create higher highs and lower lows in a broadening pattern. Then the trading range gradually narrows after the highs peak and the lows start trending upward. When the price breaks upward out of the diamond’s boundary lines, as it did in late March, it marks the resumption of the prior uptrend.
Recommendation: Buy MTH for a $53.00 – $55.00 target. The breakout has already occurred on this pattern, but there is still upside left if it goes to the upper end of the target. Another option would be to use at-the-money options to put less capital at risk.
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Join John Jagerson Monday, May 20, for a live event designed to help you Profit In May and Don’t Go Away!
InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123. Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership. For more information on which service is for you click here.