Builders FirstSource, Inc. (NasdaqGS: BLDR)

Builders FirstSource, Inc. engages in the manufacture and supply of structural and related building products for residential new construction primarily in the southern and eastern United States. The company offers prefabricated components, including floor trusses, roof trusses, wall panels, stairs, and engineered wood; and window and door products, such as aluminum and vinyl windows, and pre-hung interior and exterior doors, as well as assembles and distributes interior and exterior door units. It also provides lumber and lumber sheet products comprising dimensional lumber, plywood, and oriented strand board products; millwork products, including interior trim, exterior trim, columns, and posts, as well as custom exterior featured products; and other building products, such as cabinets, gypsum, hardware, composite materials, roofing, and insulation. The company was formerly known as BSL Holdings, Inc. and changed its name to Builders FirstSource, Inc. in October 1999. Builders FirstSource, Inc. was founded in 1998 and is based in Dallas, Texas.

To review Builder’s stock, please take a look at the 1-year chart of BLDR (Builders Firstsource, Inc.) below with my added notations:

BLDR had been trading within a sideways Rectangle for about (3) months. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. For BLDR, the Rectangle pattern formed a $4.50 resistance (maroon) and a $3.50 support (blue).  The stock broke out of that Rectangle at the end of last month and now seems to be coming back to the old breakout resistance.

The Tale of the Tape: BLDR formed a very common chart pattern know as a Rectangle. Last month the stock broke through the resistance, headed higher, and now seems to be coming back to the previous $4.50 level. A long trade could be made at $4.50 if the stock approaches that level.

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