PulteGroup: PHM Stock Should Build on Its Momentum

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Shares of home construction company PulteGroup, Inc. (PHM) while higher on the year, have underperformed the broader stock market. However, housing-related stocks have rallied strongly off the October lows, partially helped by falling interest rates on the long end of the yield curve, and through a multiweek lense, PHM stock looks poised to continue this rally, which is supported by a technically sound backdrop.

beat the bell stock investing adviceWith the next earnings slate for most homebuilding stocks not scheduled until the late January-March period, there’s likely little single-stock risk to be concerned about — at least as far as scheduled news is concerned. Looking back, on Nov. 10, Bank of America maintained its “buy” rating on PHM stock with a price target of $25. On the same day, rival Toll Brothers Inc (TOL) reported better-than-expected fourth-quarter sales, which lifted the entire homebuilding sector.

Before looking at the charts of PHM stock, let’s first understand the bullish nature of the broader home-building and related stocks, as measured by the SPDR S&P Homebuilders (ETF) (XHB). In the bigger picture, the XHB has been stuck in a sideways consolidation range since spring 2013.

After bouncing sharply off the recent October lows, however, the ETF began to consolidate near the upper end of this bigger trading range, which increasingly points to this ETF wanting to go higher and break out of the range.

XHB
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PHM Stock Charts

On the weekly chart of PHM stock, the picture also is constructive. This stock has been in a greater consolidation phase since autumn 2012, where once it overcame the horizontal resistance line from 2007/2008 (red dotted line), it needed resting time to build up energy for another move higher. The October lows coincided with a bounce off this dotted line and the rally has since broken the stock past the diagonal resistance line from the May 2013 highs.

Momentum as represented by the Relative Strength Index (RSI) is also curling back up, which is supporting PHM through a multiweek lens and should continue to do so until a bearish reversal occurs.

phm stock chart weekly
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Over on the daily chart, PulteGroup’s October lows notably formed a higher low versus the summer 2013 lows. PHM stock then quickly rallied into lateral resistance (black line) from summer 2013 before pulling back in early December along with the broader market. PHM then bounced off its 50-day simple moving average (yellow line), creating another higher low, very much like the S&P 500.

Unlike the S&P 500, however, PHM stock is not trading at all-time highs — in fact, it’s nowhere near them — and looks to be coiling up for a move that could take it at least back to the early December highs.

phm stock chart daily
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Active traders and investors could look to buy PHM stock near the $21 area for a move toward $22-$22.50.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/pultegroup-inc-phm-stock/.

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