Trade of the Day: With Fewer Rate Hikes, Consider Lennar Stock

This homebuilder stock is coiling up for a rally

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The stock market rally on Wednesday lifted most stocks as investors showed signs of relief that the Federal Reserve Chairman Jerome Powell comments indicated fewer interest rate hikes in the intermediate term. Among the stocks rallying were homebuilders such as Lennar (NYSE:LEN), which now has reached a crucial near-term level on the charts where upside momentum could accelerate from.

Homebuilder stocks as a group have not fared well so far in 2018, and while linked to the broader stock market, they may have an above-average exposure to rising interest rates. With the Federal Reserve now seemingly easing off the pedal on interest rate hikes somewhat, homebuyers may find at least marginal new interest in buying a new home, if only for the natural household formation rates that are still firm.

To be clear, I don’t necessarily foresee a new major housing boom, but rather see that in relative terms, homebuilding stocks such as Lennar could see better performance going forward.

LEN Stock Charts

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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

For some perspective, let’s look at a multiyear chart with weekly increments (candles/bars). Here we see that LEN stock for the most part over the past few years, excluding the late 2017/early 2018 breakout fake-out move, traded in a well-defined range. The upper end of this range comes in around $55 and the lower end around the high $30s to low $40s.

The most recent sell-off in LEN stock from September and October pushed the stock right back to the lower end of said range for the first time since early 2016. Thus, from a technical perspective, the stock now in my eyes has better odds for a rally than it has had for a long time.

Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Zooming in closer on the daily chart, we see that LEN stock re-tested the high $30s twice since late October, thus proving that there is respectable support in the vicinity.

With the rally on Wednesday November 28th LEN stock pushed right up at a near-term horizontal line of resistance around the $44 area, which also acted as resistance in early November and also now coincides with the yellow 50 day simple moving average.

A push above this area could release the stock higher toward $48 and $50 as next upside targets respectively.

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