D.R. Horton, Inc. (NYSE: DHI)

D.R. Horton, Inc. operates as a homebuilding company. It engages in the acquisition and development of land; and construction and sale of homes in 27 states and 79 markets in the United States under the names of D.R. Horton, America’s Builder, Express Homes, Emerald Homes, Regent Homes, Crown Communities, and Pacific Ridge Homes. The company constructs and sells single-family detached homes; and attached homes, such as town homes, duplexes, triplexes, and condominiums. It is also involved in the origination and sale of mortgages; and provision of title insurance policies, and examination and closing services. The company primarily serves title insurance agents, homebuyers, and homebuilding customers.

Take a look at the 1-year chart of D.R. (NYSE: DHI) below with added notations:

1-year chart of D.R. (NYSE: DHI)

DHI had been trading sideways back in the spring. During that period of time, the stock formed a clear resistance level at $32 (green) and a strong level of support at $29 (blue). At some point the stock had to break one of the two levels created by the rectangle pattern, and in early July the stock broke resistance. That prior resistance is now being tested as new support, as expected.

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The Tale of the Tape: DHI had a level of resistance at $32, the stock broke that resistance, and now that level is acting as support. The ideal long opportunity would be at or near that $32 level. On the other hand, one would want to enter a short position on a break back below 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

Follow me on Twitter: @cmtstockcoach