Housing is one of the most closely watched industries in the U.S. If the housing industry is growing, it can mean millions of jobs in construction and follow-on sales of everything one needs to make a house or home. New-home construction in the U.S. fell in August month over month, which indicated that the real-estate recovery is still under way. Here's a stock that's been impacted by the downtrend.
Residential builder Meritage Homes (MTH) made a double top pattern this year and this is likely to act as a ceiling on rallies. The stock is up 2% year to date, trading around $37, but that's down from its 52-week high of almost $50. The lows of early 2015 (see the chart below) are the only nearby support between here and the basement lows of 2011. In the chart below it is easy to spot the twin peaks in the $48-$50 area. The height of this pattern is used to generate a downside price target. The height is approximately $6 and if you subtract it from the trough of the pattern you get $37 as an initial target. Now that this initial target has been reached, the convention some chartists use is to double the downside projection or $37 minus $6 again. $31 is the result of this high-powered math.
A decline to $31 for MTH would break the support from early 2015 lows and open up a longer-term move toward the lows of 2011 (see below).