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Bulkowski’s Blog Archive: DHI

Blog Posting: February 28, 2008, Housing Industry and DHI

Yesterday, Lehman Brothers initiated coverage on a number of housing stocks, including this one, DR Horton, pictured. They suggested you overweight this issue (but other stocks in the industry were not so lucky). Was that a good call? Only time will tell, but I see danger in this industry.

From its low, Horton and many other housing issues have climbed at a fast clip from A to B. Price retraced to the green support line at D before forming a second peak at C. This is not an Eve & Adam double top until price retraces and closes below D, but it sure looks like one just waiting for confirmation. My guess is that price will drop rapidly as the red arrow suggests.

Other stocks in the industry and their latest pattern:

Beazer Homes, BZH, high and tight flag but the flag is quite wide and that suggests underperformance. This could also be a head-and-shoulders bottom, too, unconfirmed as yet.

Brookfield Homes, BHS, unconfirmed head-and-shoulders bottom. This might break out upward but appears to be stalling at the neckline.

Centex Corp., CTX, Eve & Eve double bottom, confirmed, and now trending up to form a double top (?).

Hovnanian Enterprises, HOV, high and tight flag with a wide flag (under performance), now forming an Adam & Adam double top.

KB Home, KBH, showing signs of forming an Adam & Adam double top.

Lennar, LEN. Another potential double top.

M/I Homes, MHO. A high and tight flag in which price has more than doubled. Looks like it needs a rest then another up surge to 27(?).

MDC Holdings, MDC. A potential double top.

Pulte Homes, PHM. A double top, unconfirmed.

With so many potential tops forming, it is more likely that price will drop than rise but you never know. Certainly caution is advised if you chose to trade any of these issues. I do not own any of them.

Aftermath

From the high at C, 17.60, price plunged in a straight-line run down to a low of 12.43 (D), for a drop of 29% in less than 2 weeks. Then, price recovered, not as swiftly as it descended, but it returned to the site of overhead resistance at peaks B and C. The pattern forming now looks like an inverted roof with a downward breakout.