BALTIMORE (Stockpickr) -- "What's working right now?"
As an active investor, that's a question that you should be asking yourself constantly. That's been especially true in 2015, when the answer to the question of what's working has been "not much" all too often. The good news is that, in spite of the recent correction in stocks, some corners of the market are actually working for investors' portfolios right now. One of those is housing stocks.
Every industry from homebuilders to construction suppliers to development companies is showing at least a few glimmers of strength right now, the result of a residential real estate market that continues to be strong in 2015. So today, we're honing in on the housing-related stocks that look best-positioned for more upside as we steam into the fall.
To do that, we're turning to the charts for a technical look.
In case you're unfamiliar with technical analysis, here's the executive summary: technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, here's a rundown of five technical setups that are showing solid upside potential right now.
Taylor Morrison Home
Up first is $2.4 billion real estate developer Taylor Morrison Home (TMHC) . Taylor Morrison has been all over the place in 2015, swinging up and down in a wide range -- but zoom out on the chart a bit, and things suddenly start to look a little bit more orderly in shares of this home development company. The $21.50 level is the line in the sand to watch in September.
Taylor Morrison is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares (that's the aforementioned $21.50 price ceiling), and uptrending support to the downside. Basically, as this stock bounces in between those two technically-significant price levels, it's been getting squeezed closer and closer to a breakout above our $21.50 resistance line. When that breakout happens, we've got our buy signal.
Relative Strength, (not to be confused with RSI at the top of the chart) adds some extra confidence to the upside in Taylor Morrison right now. That's because relative strength is holding its uptrend from the start of the year, indicating that this stock is outperforming the rest of the market long-term. As long as that uptrend in our side-indicator stays intact, Taylor Morrison Home Corp. should keep on outperforming the rest of the market.
We're seeing the exact same setup in shares of WCI Communities (WCIC) , a small-cap homebuilder. Like Taylor Morrison, WCI is another ascending triangle trade, albeit in the shorter-term. For WCI, the breakout level to watch is resistance at $26 – shares are testing a breakout above that price level this afternoon.
Why all of that significance at that $26 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in WCI, are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand WCI's shares.
The $26 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $26 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. It's a little too early to call today's move above $26 confirmed, but if WCI can hold above that level into tomorrow's trading session, consider it a buy signal.
$10 billion builder Lennar (LEN) is another stock that looks bullish right now. And the good news is that you don't need to be an expert technical trader to figure out why -- instead, the price action is about as straightforward as it gets. Shares have been bouncing their way higher in a well-defined price channel for the last year now, and we're seeing another solid opportunity to be a buyer this week.
The price channel in Lennar is formed by a pair of parallel trendlines that have done a good job of corralling this stock's price action since last summer -- put simply, every test of the bottom of the channel has been a great buying opportunity for shares of this stock. And as shares come off of support for the eighth time, it makes sense to buy the bounce we've seen in the last few sessions.
With the broad market in correction-mode this month, and volatility on the rise, risk management is crucial on any trade you take here -- even one as straightforward as Lennar. The 200-day moving average has been acting like a good proxy for support since the start of the year, which makes it a good place to park a protective stop. If the 200-day moving average gets violated, then the uptrend in Lennar is over, and you don't want to own it any more.
Building materials maker Owens Corning (OC) is another textbook uptrend trade to watch this week. Shares have been bouncing their way higher in an uptrend since last December, but this stock has been sliding its way up the bottom of the channel more recently. Just like with Lennar, it makes sense to buy the next bounce higher in Owens Corning.
Actually waiting for that bounce is important for two key reasons: it's the spot where shares have the most room to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before the channel breaks, and you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for this bounce to happen first, you're ensuring Owens Corning can actually still catch a bid along that line before you put your money on shares.
The 50-day moving average is a good risk management level in Owens Corning. If shares violate that blue line, then the uptrend is over.
Last up on our list of homebuilding-related stocks is Apogee Enterprises (APOG) , the small-cap architectural building supply manufacturer. Despite the S&P 500's move to the negative in 2015, this has actually been a pretty stellar year for shareholders in Apogee; shares are up more than 27% since the calendar flipped to January. But don't worry if you've missed the move so far -- shares of Apogee look ready to make a second leg higher this month.
After correcting at the end June, Apogee has been forming a double bottom, a bullish reversal pattern that looks just like it sounds. The double bottom is formed by a pair of swing lows that bottom out at approximately the same price level -- the buy signal comes on a push through the peak that separates those two troughs. For Apogee, that breakout signal comes on a confirmed move above $56.
The double bottom in Apogee is a shorter-term setup -- after all, this stock is still relatively close to its prior highs set earlier this summer. That said, a breakout above $56 clears the way for a re-test of shares' previously-set high water mark. That's a very good reason to keep a close eye on this setup here.