Here’s a look at some homebuilding stocks.
This is Dan Fitzpatrick with FITZ IN FIVE. Homebuilders ( NYSEARCA: XHB ) are working really well.
They have been running for a while but, this thing, the XHB ( NYSEARCA: XHB ), and also the Dow Jones US Homebuilding Index or Construction Index ( INDEXDJX: DJSHMB ), has kind of done the same thing, and that is, hit new highs. The last time this was up even close to this level was back here in late 2021. Then we got this big dip here.
If you really want to look at this you have to be creative and squint your eyes a little bit. I would look at this and say that this is a big old cup. And like I said, “You’ve got to squint here and use your imagination.” I’m asking for some leeway here, and then this is a handle. Then we get a breakout right here around 80.00, and now we are looking for that kind of move to the upside. That’s on a weekly chart.
The bottom line is this, if you are looking at that pattern, you can’t put a stop just a little bit below there, volatility will kill you on that. But what you could do is, look back here and say, “Okay, well I see this gap in the XHB ( NYSEARCA: XHB ). The low is 79.76, I just got it at 79.20 or so.” I could look at this and say, “I don’t want to buy it today because, by the way, this thing traded it’s probably going down tomorrow. So I will wait to see how far the stock falls, hopefully, it will fall enough to give me a better entry.”
Let’s say it falls to the 8-day EMA, maybe even a little bit below. It shouldn’t matter with respect to where you put your stop. You would put your stop based on the top of this gap here and say, “Okay, as long as the stock holds $80.00 I’m good.” And so the further down this thing goes, as long as it is not just a complete breakdown, where it is a big wide-ranging downdraft on massive volume, which I don’t think is going to happen, I don’t know how it would right now.
But the further this falls and gets closer to, we’ll say 83.00, which would have really been the last good entry, if the stock were to fall back here and give you an entry right around 83.00, now you are taking a risk of less than 5 percent, about 4.5 percent in buying, if the stock comes back down here. That’s what I would look at in the Homebuilding ETF.
With KBH ( NYSE: KBH ), it used to be Kaufman and Broad, now it’s just KB Home ( NYSE: KBH ), you get a similar situation. Here, the stock did break out above this high once again, just like the other. It looks like it is a one-day reversal, maybe a little bit of a climax high here. So this is another one, again, the pattern is similar but there are a lot of differences as well. If the stock pulls back, down into this cluster here, where it has, obviously, traded before, it kind of puts you right in the mix, so that you are not buying on a breakout that ultimately fails. Because a lot of breakouts have been getting knocked down, most of them have been.
So this is the way you have got to look at it. You have got to say, “Hey, the stock broke out.” Okay, what is that? That’s a sign of strength, that’s a sign of aggressive buying. Otherwise, you are not going to get a stock breaking out. So bam! That sign is there.
That dynamic has been identified. And then when you get a pullback, if the breakout kind of fails, what that tells you is, okay, there is also some supply in there too. But it doesn’t negate the presence of buying interest. It just means that there wasn’t enough, relative to the supply, to keep the stock going. So the stock gets knocked down, listen to me, I’m giving you pearls here, the stock gets knocked down, and what does it get knocked down by? That supply.
Well, once the supply has been absorbed, then that supply is gone. Then it is just a battle between excess demand that still wants the stock and is happy to get it at a lower level, versus excess supply, which is, “Okay, well I didn’t sell it the last time, but if I get any more demand I’ll sell it then.”And so this is the push and pull that makes stock charts look like stock charts.
And if there wasn’t that push and pull, then the market would not exist. You have to have buyers and sellers willing to pay different prices for things, where ultimately though, through the negotiation of microseconds, they come to some kind of a compromise.
So if you can think about any price chart as, literally, a negotiation as well as maybe a tug of war, if you want to go, I’ve got analogies up the wazoo for the market, but let’s just go with those. If that is how you want to look at this stuff then these charts are going to make more sense to you. I hope this does make sense to you and I hope you are patient in waiting for a better opportunity to get into my “Homies”.
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