The well-known home construction company headquartered in Arlington, Texas, D. R. Horton Inc. (NYSE: DHI) shows signs of an upcoming price surge according to its latest charts.
Bullish Indications
#1 Falling Wedge Breakout: The daily chart of DHI shows that the stock was trading within a falling wedge pattern during the past several months. This is marked in the daily chart in purple color. Currently, the stock has broken out of this falling wedge pattern. A breakout from a bullish pattern like Falling Wedge Pattern shows that the stock has gained momentum and has the potential to move further up.
Daily Chart – DHI
#2 Above MA: The stock is currently trading above its 50-day SMA as well as 20-day SMA. The 20-day SMA has also crossed above 50-SMA. This indicates overall bullishness for the stock.
This indicates bullishness.
#4 Near Support: The stock is currently near the gap support (shown as a green dotted line).
This seems like a good support point for the stock to bounce back.
#5 MACD above Signal Line: The weekly chart shows that the MACD (light blue color) is above the MACD signal line (orange color).
This indicates a potentially bullish setup.
Weekly Chart – DHI
#6 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#7 Chaikin Oscillator Bullish Divergence: The weekly chart shows that there is a bullish divergence between the Chaikin oscillator and price. The Chaikin A/D Oscillator was making higher lows while the price was making lower lows. This usually indicates bullishness.
#8 Fibonacci Support: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again. DHI has taken support at the 50% Fibonacci support level of the upmove, as seen in the weekly chart and is now consolidating there. This consolidation area is shown as a green rectangle. This seems like a good level for bounce-back.
#9 %K above %D: The stochastics show that the %K line is currently above the %D line in the weekly chart. This is a bullish sign.
Recommended Trade (based on the charts)
Buy Price: If you want to get in on this trade, the ideal buy level is above the 200-day SMA, at around $45.50. But for those with a higher risk appetite, you can purchase half the intended quantity of shares of DHI at the current price of $43.83.
TP: Our target prices are is $52 and $60 in the next 3-6 months.
SL: To limit risk, place a stop loss below the 20-day SMA at around $42.40. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 14% to 36% in the next 3-6 months.
- Entry at $43.83: For a risk of $1.43, our target rewards are $8.17 and $16.17. This is a 1:6 and 1:11 risk-reward trade.
- Entry at $45.50: For a risk of $3.10, our target rewards are $6.50 and $14.50. This is a 1:2 and 1:5 risk-reward trade.
In other words, this trade offers nearly 2X to 11X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the falling edge breakout level. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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