Gregory W. Harmon, CMT, CFA, and Founder and President of Dragonfly Capital Management, provides expert technical analysis of securities and markets. He has over 25 years of trading experience at BNP Paribas, State Street and JP Morgan.
Most home builders reported earning a couple of weeks ago and were soundly pummeled by investors. It happened to Beazer Homes, $BZH, D.R. Horton, $DHI, KB Home, $KBH and Lennar, $LEN. Some down over 20% now most are recovering but have not yet clawed back half of their loss. Only Lennar is back to pre-earnings levels. When I think of building homes, the first thing that comes to mind is lumber. So how did that do over this period? Taking a look at the chart for random length lumber, it made new highs heading into these reports and held. Digging deeper it
Random Length Lumber $LB_F
broke above an ascending triangle and has been consolidating there since October 31st. You may recall that this was the day the markets opened after Hurricane Sandy, but this move was not caused by the Hurricane. It started 3 weeks earlier. From a technical perspective the break higher brings a target of 480, or nearly 44% higher. New highs in lumber, and targets 44% higher? If this does not suggest that the recent pullback in Homebuilders is a buying opportunity then I do not know what is.