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1 Stock to Buy, 1 Stock to Short: Homebuilders

It’s spring, the peak time for couples and families to go on the house hunt. Real estate prices are strong, though there are some troubling factors like persistently low builder confidence ratings that are making the sector somewhat of a mixed bag.

That’s where my Trending123 Pattern Scan comes in—it’s one tool I have to look through all the technical patterns developing in the market. I’ve identified two stocks in this area that have opposite prospects based on their technical patterns, but both have a chance at profits.

Buy the Continuation Diamond

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(NYSE:LOW) is a home improvement and hardware supply store that has developed a continuation diamond over the past 66 days.

The price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend. The pattern begins during a downtrend as prices create higher highs and lower lows in a broadening pattern. Then the trading range gradually narrows after the highs peak and the lows start trending upward. When the price breaks upward out of the diamonds boundary lines, it marks the resumption of the prior uptrend.

Recommendation: Buy LOW for a $41.80 – $42.60 intermediate-term upside target.

Short the Top Triangle

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Beazer Homes
(NYSE:BZH) is a diversified homebuilding company that has developed a top triangle over the past 44 days.

The price seems to have reached a top, showing signs of reversal as it has broken downward after a period of uncertainty or consolidation. A top triangle shows two converging trendlines as prices reach lower highs and higher (or stable) lows. Volume diminishes as the price swings back and forth between an increasingly narrow range reflecting uncertainty in the market direction. Then well before the triangle reaches its apex, the price breaks down below the lower trendline with a noticeable increase in volume, confirming this bearish pattern as a reversal of the prior uptrend.

Recommendation: Short BZH for a $10.60 – $11.60 target. This trade should take about as long to play out as it took to develop.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.  For more information on which service is for you click here.


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