LEN Found Support at $44 and Could Break Out in February

New residential sales numbers are a good sign for homebuilders

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This morning I’m recommending a bullish trade on Lennar Corporation (NYSE:LEN), a homebuilding company that also provides real estate financial services.

After recovering in January, I think LEN could break out to the upside. Though the housing market still shows some weakness, we are seeing bullish signs in the near term, and I would like to take advantage.

November New Home Sales

The U.S. Census Bureau released monthly statistics for November’s new home sales last week. Sales of new homes came in at a seasonally adjusted annual rate of 657,000, beating the revised October rate by nearly 17%.

These numbers are for before December’s selloff and before the government shutdown, but they are still a positive sign for the market.

And the sector is doing better going into February. The SPDR S&P Homebuilders ETF (NYSEARCA:XHB), which tracks the homebuilding sector, has recovered 19% from its lows in December. These new sales numbers could help push the sector even higher in the near term.

Breaking Above November’s Resistance

If we look at a daily chart for LEN, we see that it has found support at just under the $44 level. After the selloff in October, the stock had trouble breaking above $44, but as is often the case, old resistance has turned into new support.

Daily Chart of Lennar Corporation (LEN) — Chart Source: TradingView

LEN is trading between its 50- and 200-day moving averages, and the good news for the housing sector could push the stock higher. If it does break out, its next resistance level will be around $50, so it will likely head higher before coming back down to retest its new support. For that reason, I’ve picked a bullish call option this morning.

Buy to open the Lennar Corporation (LEN) May 17th $52.50 Calls (LEN190517C00052500) at $1.45 or lower.

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