Building a trade in Lennar

• Posted by Greg Harmon
• on August 17th, 2015

Home builders are feeling the most confident they have in years. Sure the Fed says that interest rates are going to start rising soon, but they will be rising off of historic lows. The double digit interest rate mortgages of the past are not likely to come back. Or at least not for many years.

And the cost of home building inputs has been falling. Timber is off nearly 40 percent from the 2013 peak and Copper more than 40% from its highs. Finally there has been ample labor force to put to work building homes as the millenials start to have families and move to the ‘burbs.

One company in this space, Lennar, $LEN, has been doing quite well. And its stock price has been trending higher. The chart above shows the price action over the last 9 months. The rising trend support is shown with a series of higher lows. Since April there has been a lid on it at 53.75 and it is back approaching that level again today.

On a shorter basis the stock has moved in a channel between 50 and 53.75 since mid June. The 50 level shows significance as prior resistance over the April to June timeframe. Resistance has now become support as happens often.

With the move to resistance this time the Bollinger Bands® are opening to allow more upside. The momentum indicators are bullish too, with the RSI moving higher in the bullish zone and the MACD crossing up. A break out to upside will have support. And it has over 13% short interest that could fuel a short squeeze as shorts cover when the stock moves higher.

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