It's easy to think that if you just had a peek at the headlines of the future, your job as an investor would be much easier. That's not always the case. Fed hikes, bank failures and recession fears arise. You wouldn't expect strength in homebuilders with that news. However, the chart of Lennar stock told a different story.
Building Sector Strength
Lennar was just one of the members of the building sector that was worthy of attention. There were plenty others. In fact, as Lennar stock broke out of a cup with handle in April (1), we passed on it at the time because we already had a housing stock swing trade in D.R. Horton.
But the move in the housing stocks generally showed strong relative strength lines by the beginning of May (2). But most of them corrected and found themselves below their 50-day moving average lines in just a few days (3).
Many of the housing stocks moved above their 50-day lines in unison after a week or so, clearing a short consolidation under the 50-day (4). What set Lennar stock apart from most of the others is that volume came in significantly higher than average. This earned it a spot on SwingTrader.
The headlines might not have seemed favorable for housing, but the chart continued to show buying demand.
Swing Trading Example: Lennar Stock
We often like to see an immediate gain in our swing trading stocks but we didn't get it the next day with Lennar stock (5). But a close in the top of the range and an inside day wasn't particularly discouraging either.
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When Lennar stock popped higher the next day (6), we took the opportunity to lock in a third of the position while we had a nice gain. Having locked in a bit of a profit, it was a little easier to stomach the reversal the next day (7) and the subsequent pullback. We were able to give it room and hold onto it since it managed to remain above the 5-day moving average line (8).
Ultimately, we knew we had an expiration date on Lennar stock because its earnings report was scheduled for June 14 after the close. We also had the Fed meeting that day and it seemed prudent to skip the extra volatility and sell before that event. As Lennar stock recovered near its previous highs, we sold it a day early as it started to reverse again (9).
It was a quick trade before earnings and one that would have easily been skipped given headlines. But the homebuilding group occupied the top 20 of our 197 industry groups since mid-March. That gave us the confidence to score another homebuilder winner with Lennar stock by paying attention to the price of the stock.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
