MDC Holdings Inc. (NYSE: MDC)

M.D.C. Holdings, Inc. operates in two business segments: homebuilding and financial services. The homebuilding operations consist of wholly owned subsidiary companies, which purchase finished lots for the construction and sale of single-family detached homes to homebuyers under the name Richmond American Homes. The homebuilding operation operates in four business segments: West (Arizona, California, Nevada and Washington); Mountain (Colorado and Utah); East (Virginia and Maryland, which includes Pennsylvania, Delaware, and New Jersey), and other homebuilding (Florida and Illinois). The financial services and other segment consists of Home American Mortgage Corporation, which originates mortgage loans for the homebuyers; American Home Insurance Agency, Inc., which offers third-party insurance products to the homebuyers, and American Home Title and Escrow Company, which provides title agency services.

Please take a look at the 1 yr. chart of MDC (M.D.C. Holdings, Inc.) that I have shown below with my added notations:

MDC has formed a nice up-trending Channel over the last 3 months. A Channel is simply formed through the combination of a trend line support that runs parallel to a trend line resistance.  When it comes to a Channel, I always tell my students that any (3) points can start the Channel, but it’s the 4th test and beyond that confirm it. You can see that MDC has (5) separate test points between the Channel resistance (red) and Channel support (blue). Following the MDC Channel can provide you with both long and short trading opportunities.

The Tale of the Tape: MDC has formed a common chart pattern know as a Channel, in this case, an up-Channel. A long opportunity could be entered on a pullback to the Channel support, which at this point seems to be around $24. Short trades could be entered at Channel resistance OR if MDC were to break below the Channel support.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT