Shares of Building Materials Holding ( BLG) remain under pressure as the overall housing market continues its downturn.

As the company's name suggests, Building Materials deals in residential construction and related building services. So unless the housing market sees a leveling off or a reversal, there's a high probability for, and continued expectation of, this company's stock price remaining in a downtrend channel. For those long the stock, the only aspect to the downtrend that can be viewed as positive would be that most people know about the slowdown and everyone is following the upgrades and downgrades in this sector.

Such an informed investor base would suggest that all the negativity may already be priced into the stock. Therefore, if the stock was to remain in a downtrend, fundamentally, the company would have to continue to struggle and expectations for a further decline in housing-related assets would be higher.Technically, the downtrend channel remains intact and the reason this stock remains on the radar for a downtrend trade setup is that there is still technical weakness in the stock price action.

The start of this downtrend began in late 2006 when the double-top formation at $28 finally led to a break below $24 support. From that, the test of the $20 support level was breached in late February and early March of 2007. The retest of $20 formed a resistance level, and the stock continued to see more lows.

The ideal setup for this trade would be to see a move into the downtrend channel resistance near $20. An entry at $19.75 would require a stop at $20.75, for a $1 risk. The first profit target would be at $18.75 to satisfy the 1-to-1 reward/risk ratio. The final profit target will be based on price action under $17.50. If the price can break that level, there will be a continuation signal and the $16 to $16.25 area would be the final profit target.

If price closes under $17.50 without first offering an entry, this trade setup is no longer valid. Shares of Building Materials closed at $17.16 Monday.


Building Materials Holding (BLG) -- Daily


Updates on Previous Picks

  • FiberTower ( FTWR) did not set up last week. The ideal setup would start with an entry at $5.60. The stop would be placed at $6.20, offering 60 cents in risk. The downtrend confirmation signal will result when the price closes below $4.60. This would be the first area for profits, as it would offer $1 in profit vs. the 60 cents in risk. If this level can break, the next profit target would be in the $3.50 area, but this final target will have to wait until we see how price behaves near $4.60.

    If price moves under $4.60 without first offering an entry, this trade setup is no longer valid. Shares closed at $5.08 Monday.
  • PetMed Express (PETS - Get Report) is still open with the entry at $12.80. The stop at $14.25 offers $1.45 in risk. The first profit target would be placed at $11.35 to satisfy the 1-to-1 reward/risk ratio. Partial or full profits could be taken there. If partial profits are taken, the stop can be lowered to $13 and the final profit target would be the September lows of $9.50. Shares closed at $11.93 Monday.
  • Savient Pharmaceuticals (SVNT) set up two weeks ago with the entry at $12.The stop is at $13, which offers $1 in risk. The first price target will be at $11 with a final profit target at $10. Shares closed at $11.97 Monday.

At the time of publication, Schumacher had no postions in stocks mentioned, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.