The tight provide setting within the housing market largely fueled DR Horton’s (DHI) robust year-and-a-half run. Final week, DHI’s earnings took a success, lacking the mark on Wall Avenue’s revenue expectations (although it managed to beat on income), along with signaling softer quarters forward.

DHI’s inventory dropped from its all-time excessive of $157.93 to a low of $138.83 earlier than recovering. However is it a buyable dip? Or is it a falling knife ready to snare the unwary? Let’s take a look at DHI inventory’s every day chart to search out out (see beneath).

CHART 1. DAILY CHART OF DR HORTON. Consumers jumped in as quickly value started consolidating beneath the 50-day SMA line.Chart supply: StockCharts.com. For instructional functions.

The story right here is fairly clear:

• DHI fell beneath the 50-day easy shifting common (SMA), and patrons jumped in, assuming the dip was adequate to sign a purchase.
• The Stochastic Oscillator is one indicator that confirms the “oversold” thesis.
• Plus, the 50-day and 200-day SMA are trending upward, with the 50 properly above the 200. Each are signaling bullishness.

Whereas this makes for an affordable “buy-the-dip” thesis, it may use loads of fine-tuning by filtering it throughout totally different, but complementary indicators.

Useful Charting Tip

DHI was filtered within the StockCharts’ Entered Ichimoku Cloud scan, a superb approach to discover potential “purchase the dip” shares. Verify it in opposition to the StockCharts Technical Rankings (SCTR) rating (and, after all, the chart itself) to see if it is a tradable prospect.

CHART 2. DAILY CHART OF DR HORTON WITH ICHIMOKU CLOUD AND CHAIKIN MONEY FLOW.  Including extra indicators to measure the pullback and momentum can provide you totally different angles to understanding the “purchase the dip” state of affairs.Chart supply: StockCharts.com. For instructional functions.

Evaluate the above chart to Chart 1 and resolve whether or not an entry on the purchase aspect might need been untimely.

• Countering the “oversold” studying on the Stochastic Oscillator, the Chaikin Cash Stream exhibits a dramatic decline in shopping for momentum.
• The Ichimoku Cloud signifies a bullish situation, but provides the inventory a a lot wider vary of help than, say, the 50-day SMA; nonetheless, it helps to pinpoint a extra particular entry degree.
• The purple line marks a resistance degree more likely to function help.
• That potential help degree additionally sits proper above the Fibonacci 50% retracement line, which, in flip, sits proper above the bottom degree of the cloud.

However are there different technical causes to help the case that DHI might need extra draw back to run earlier than reversing upward? The reply is sure in case you have a look at DHI from a seasonality context.

CHART 3. 10-YEAR SEASONALITY CHART FOR DHI. April, July, and November are DHI’s strongest months.Chart supply: StockCharts.com. For instructional functions.

DHI’s 10-year seasonal efficiency exhibits that February is a weak month for the inventory. Whereas March has a robust increased shut fee (78%), its common 10-year return is 0.6%. April, nevertheless, has an above-average higher-close fee and a robust common seasonal return of 5.6%. The strongest months are July (with a 100% increased shut fee and eight.5% common return) and November (89% increased closes and 9.7% common return).

However how would possibly DHI’s efficiency examine with the S&P 500’s seasonal efficiency?

CHART 4. 10-YEAR SEASONAL PERFORMANCE OF DHI VS THE S&P 500. Although the numbers might fluctuate in opposition to the broader market, DHI’s robust months stay constant.Chart supply: StockCharts.com. For instructional functions.

The efficiency, although barely diversified, nonetheless displays the identical state of affairs: February is a weak month, whereas April exhibits energy, and July and November are the strongest months.

The Backside Line

Contemplating DHI’s 10-year seasonal efficiency, by itself and in opposition to the broader market, means that its present dip is not fairly over but. The CMF exhibits a decline in shopping for stress and does not point out vital bullish momentum. Including the Ichimoku Cloud, Fib retracements, and easy help and resistance to the combination may help merchants establish favorable entry factors. So, it is a matter of ready. However the context for a commerce setup is properly in place.

Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.