All markets witness cycles of booms and busts. Right now though, housing market investors are being offered both at the same time. And there is an opportunity to build profits from these investment contradictions in PulteGroup (NYSE:PHM) and Zillow (NASDAQ:Z) by purchasing PHM stock and Z shares as a bullishly-hedged pairs play. Let me explain.
Housing stocks like PHM stock and Z stock are at the intersection of Main and Wall Street for investors. The fact is all of us need a roof over our heads. And with interest rates remaining at historically low levels, a U.S. economy still growing and a favorable, building millennial demographic — supports for PHM stock and Z stock are in place.
That’s not to say there aren’t risks for PulteGroup or Zillow. The economy, interest-rate policy, demographics and many other factors like wage growth, building costs and housing prices are always potentially challenged by less-helpful revisions which could impact PHM stock and Z shares.
Nevertheless, off the price chart Wednesday was a good one for the housing market. Quarterly reports from homebuilders Lennar (NYSE:LEN) and KB Home (NYSE:KBH) offered up better-than-expected results and upbeat forecasts following a bit of weakness this past year. And on the price chart, the outlook for investors looks even more supportive using a hedged pairs play buying PHM stock’s market-leading boom, alongside the current mini-bust, crisis in confidence in Z stock.
Housing Stock Pairs Buy #1: PHM Stock
Housing’s intersections of Main and Wall Street is one thing for investors to think about. But on the price chart of PHM stock it’s all about taking bullish action as intersecting or converging Fibonacci and trend-lines are setting up a big-time breakout!
Wednesday’s session saw shares of PulteGroup power higher and forge an initial breakout of a few layers of price intersecting resistance lines. By my count and looking at the daily chart of PHM stock, a move through $29.25 will complete the bulldozing of technical barriers.
But I don’t think investors need to wait on buying PHM for additional confirmation. As part of a pairs strategy, Wednesday’s strong technical action looks promising enough to buy PHM stock today.
I’d suggest an initial stop beneath the 200-day simple moving average in order to contain the long position’s exposure off and on the price chart. But if all goes as planned, continued leadership and price momentum should find PHM rallying back towards its all-time-high of $34.59.
Housing Stock Pairs Buy #2: Z Stock
Unlike PHM stock which is seeing a technical boom in its shares, right now Z stock is building a foundation of sorts after being torn-down the past few weeks from relative highs. My advice is to use this housing stock’s relative weakness to your advantage and buy Zillow shares today.
Much like PulteGroup’s shares, there’s sufficient technical evidence for purchasing Z stock. In this instance though, investors are buying a well-supported mini crisis in confidence in Zillow. Despite Wall Street’s current jitters in Z stock, shares are in a solid testing position of bullish channel support, the 50% retracement level and last month’s bullish earnings gap.
For investors agreeable with this pairs strategy and buying Z stock to complete the package, I’d recommend an initial stop below $34.50. Similar to PHM stock this minimizes one’s dollar and technical exposure without letting an opportunistic pullback turn uglier.
And if all goes well and much like PulteGroup, a boom in Z stock prices off support inspired investor FOMO seems very reasonable and looks very profitable.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.