Since the December 1st pivot date the entire stock market has rallied higher. Most industry groups have participated in the broad based advance. Often money will rotate from one sector to the next depending upon how far a particular sector has rallied. Well, it now appears that the home builder sector has now reached the top of its trading range. When a stock or industry group reaches the top of its range the institutions that own the stocks will usually look to start unloading or sell the stocks. This is usually when the public or the retail trader is buying the stock because they feel that they want to own something that is up so much. The public usually does the opposite of the institutions.
Toll Brothers Inc.(NYSE:TOL) has rallied higher since late November when the stock traded around $ 17.35 a share. Today Toll Brothers Inc. is trading at $ 19.50 and this is the high range for the stock over the past three months. Therefore, this is when the institutions will begin to start unloading or feeding the stock out to the public. In other words a pullback will begin shortly.
Lennar Corp.(NYSE:LEN) is another leading home builder stock that has rallied higher since late November when the stock was trading at $ 15.00 a share. Today the stock traded as high as $ 18.49. This stock is now trading around a good short term resistance area and a pullback could be near. The next important resistance area for the stock will be around the $ 20.00 area.
D.R. Horton Inc.(NYSE:DHI) is another leading home builder stock that was trading around $ 9.80 in late November. Today the stock is trading just under the $ 12.00 level which is very good resistance. On November 12th, 2010 the stock traded as high as $ 12.20 a share so this would be the high range for the stock and D.R. Horton could reach that level. However, this is where the institutions will start to distribute or sell stock. Therefore, it is prudent to expect a pullback soon.
This is the holiday season so it is possible to see stocks hold up into the holidays. However, when certain stocks or industry groups reach their prior highs of the range it is a time for the institutions to take profits. Therefore, expect pullbacks in the home building sector soon.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
Nicholas Santiago started trading in 1991. In 1997, he became a licensed Series 7 and 63 registered representative. He managed money for a large, affluent private client group. After applying his knowledge to his client base, he decided it was time to begin teaching those interested in learning his methods. He is an expert in Technical Analysis. He has become an accomplished technician in the studies of Elliot Wave, Gann Theory, Dow Theory and Cycle Theory. In 2007, he partnered with Gareth Soloway to form InTheMoneyStocks.Com and realize his dream of educating others about the truth of the markets.
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