KB Home Just Completed a Multiyear Bottom

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The Street’s undying obsession with FANG stocks and other such momentum players means equities elsewhere are often overlooked. Homebuilders are one such space that staged a sharp ascent this fall but to little fanfare. KB Home (NYSE:KBH) is the poster child for the industry, rallying some 30% in the past month alone.

KBH Stock: KB Home Just Completed a Multiyear BottomThose seeking a cause for the effect need look no further than earnings — the quarterly ritual known for its volatility generation. The Sept. 28 release kickstarted KBH’s meteoric rise with a solid earnings beat. And at $27.77, this morning’s high reached levels untouched since 2008.

If you really want to light a fire under your KBH stock optimism, just take a look at its monthly chart. The recent breakout completed a long-term base, years in the making. And you know what those technicians like to say, “the longer the base, the higher in space.”

Source: OptionsAnalytix

So, although KBH is understandably overbought following such a jump on the daily chart, the bigger picture looks like it’s just getting started.

What attracted me to KB Home for today’s selection is the clean two-week consolidation pattern forming near its highs. I don’t know what’s more impressive, the fact that the stock recently ripped 30% or the fact that it has stayed aloft with virtually zero give back.

With today’s broad market weakness, we are finally seeing some selling pressure in KBH, but thus far the damage is contained. And while the stock may be in for a few more days of consolidation, the next trade here is obvious. Wait for a breakout over the highs ($27.80) and deploy bullish plays.

Source: OptionsAnalytix

Build Profits with KBH Stock

To provide ample time for KB Homes to follow through, we’ll set up our trade using Jan 2018 options. Buy the Jan $27/$30 bull call spread. Right now, the spread costs $1.06, but the price will be higher if you wait for the breakout to trigger.

The max loss is capped at your initial cost and will be lost if KBH sits below $27 at expiration. The max gain is limited to the spread width minus the cost. That means if you enter for, say, $1.20 then your max gain will be $1.80.

As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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