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Downside Targets for 3 Crumbling Homebuilders

All day I scan the charts looking for technical patterns to trade–and after last week’s selloff, housing-related stocks are looking pretty bad. My Trending 123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and it is showing three technical events you should have a look at in this area.

Head and Shoulders Top

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Beazer Homes
(BZH) is showing a head and shoulders top, one of the easiest patterns to distinguish. The price seems to have reached the end of a period of “distribution” at the top of a major uptrend; the break down through support signals a reversal to a new downtrend. The head and shoulders top is created by three successive rallies in the price following a significant uptrend. The highest high (head) is in the middle, flanked by two lower highs (shoulders) at roughly the same level. Volume is highest as the price makes the first two rallies, then diminishes through the right shoulder. Finally volume surges as the price closes below the neckline (drawn between the two lows) to confirm the reversal.

Open Price: $17.46

Downside Target: $13.50 – $14.40

Diamond Top

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MDC Holdings
(MDC) has developed a diamond top over the past 131 days–making this a long-term pattern. The price seems to have reached a top, showing signs of reversal as it has broken downward after a period of uncertainty or consolidation. The diamond top pattern begins during an uptrend 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 downward out of the diamonds boundary lines, it marks a significant reversal to a new downtrend.

Open Price: $31.25

Downside Target: $22.00 – $25.00

Triple Top

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Hovnanian Enterprises
(HOV) is showing an intermediate-term triple top that has developed over the past 21 days.
The price  seems to be turning around to form a new downtrend. The triple top starts with prices moving upward followed by three sharp peaks all at about the same price level showing a test of a resistance level. Volume diminishes at each successive peak and finally bursts as the price falls below the lowest low–a decisive breach of that support level. This breakout confirms the pattern as a sign of a bearish price reversal.

Open Price: $5.40

Downside Target: $5.05 – $5.20

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 OpenParabolic Options and Trending123.  Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership.

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