New Strategy for Home Builder Stock After Goldman Sachs Downgrade
We're taking a closer look at the charts after a major home builder saw its stock downgraded.
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Shares of home builder Lennar LEN were downgraded on Monday by Goldman Sachs Group GS to "neutral" from "buy." Let's check out the models, charts and indicators to see if we need to relocate our investments.
In this daily bar chart of LEN below, I can see that prices have soared higher in July. Prices are trading lower Monday but prices could change by the close. LEN trades above the rising 50-day moving average line and above the rising 200-day moving average line. Trading volume has been more active in the past four or five weeks. The On-Balance-Volume (OBV) line has been on an upward path since October with no signs yet of a downside reversal. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but we need to watch for signs of narrowing.
In this weekly Japanese candlestick chart of LEN below, I can see that prices made an upper shadow above $170. An upper shadow is not a top reversal, but it does indicate that traders rejected the highs. The 40-week moving average is in an uptrend but this is a lagging indicator. The weekly OBV line has been stalled since last June and fails to confirm the price gains. The MACD oscillator has been in a correction mode but shows some recent narrowing.
In this daily Point and Figure chart of LEN below, I can see an upside price target in the $245 area. A trade at $158 or lower may be needed to turn this chart bearish.
In this weekly Point and Figure chart of LEN below, I can see the same upside price target in the $245 area as shown on the daily chart above.
Bottom line strategy: When GS talks, Wall Street often listens, so their downgrade should not be ignored, even by technical analysts. Strong sell signals have not developed yet, so the best course is to raise your sell stops.
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