For an economy continuing to rebound, the homebuilders are surely in need of bulls looking for a home. Right now, it just isn't happening, and based on today's action, it looks like it could become much worse for this group in the near term. There are many weak charts in this group, but PulteGroup (PHM) edged out Toll Brothers (TOL) today to take top bearish honors.
PulteGroup already had a tough April, giving up 10%. The stock found support in the $19.25 area but was never able to get into the gap left in April. Now it has formed a series of higher lows and lower highs. This wedge has become nothing more than a bearish consolidation for the move lower in April. Today's drop below support now gives us a lower low, one we've not seen since last November.
This action is very bearish. While there were some bounce in the secondary indicators, note the weakness associated with those bounces. The Relative Strength Indicator (RSI) never cleared 50 while the stochastics turned back to bearish quickly after crossing above 50 when price ran into resistance. The Chaikin Money Flow (CMF) at the bottom of the chart saw green just a few times since the gap lower, while the Chaikin Oscillator, just above the CMF, never did get above zero.
There wasn't a reason to buy since the gap lower, beyond trying to play a very oversold bounce when the RSI was below 30 and the slow stochastics had a bullish crossover while it was under 20. That bounce is gone. If we see another, I would say a long swing trade is worth a shot. Where do I think we'd see that? My guess would be somewhere around $17.50 to $18, the downside target of this breakdown. At the very least, I suspect we'll give $18.75 a go in the next week.
There will be a long opportunity, but wait until you see more weakness in the CMF and slow stochastics. Even that play simply looks like a bounce trade and nothing of a long-term nature. If you are short, then a close above $19.50 is your yellow flag and over $20.25 is your stop. This positions $20 puts as a viable short play on PHM. The nature of this chart is short-term, so when I discuss puts, I'm thinking something that expires within three months in an attempt to get the biggest bang for the buck.
We still have several hours left of trading and this is a chart where a close below support is absolutely needed before taking action, so I'm not doing anything yet, but this is one set to trigger today.