Lennar (LEN) reported better-than-expected earnings Tuesday morning. But this may be yet another example of "buy the rumor and sell the news," as the chart has rallied into resistance that is likely to cap further gains.
In this first chart of LEN, above, we can see how the rally this year lifted prices to the lows of August, September, November and December. These lows were support until prices broke to the downside in January -- now the roles are reversed and these lows are considered resistance. Imagine that traders who bought these dips on expectations of selling out on a stronger rally got trapped on the January decline. Now that prices are back to their entry price they are anxious sellers. Also, prices of LEN rallied to the underside of the declining 200-day moving average line. The On-Balance-Volume (OBV) line made a weak recovery from its February low. Last, the momentum study has been weakening in March, telling us the rally is slowing.
In this longer-term weekly chart of LEN, above, we can see how prices rallied to the underside of the declining 40-week moving average line. We can see the extent of the overhead resistance to $55 from $47. The OBV line on this timeframe is pointing down and the Moving Average Convergence Divergence (MACD) oscillator generated a cover shorts buy signal, but remains below the zero line.
Conclusion? While LEN may beat some quarterly metrics, the chart suggests the recovery rally this year has run into resistance that will stop the advance.