KB Home (KBH) reported fiscal third-quarter earnings this morning, and the stock fell more than 4% in early trading. When a stock declines, despite seemingly beating estimates, it illustrates the first of three key points of logic behind technical analysis.
First, technicians or chartists believe that the market is a discounting mechanism -- it is forward looking with stocks focused 6 to 9 months ahead. Remember that the S&P 500 is part of the Leading Economic Indicator (LEI) series. Second, technicians believe that prices trend. Third, technicians believe that history tends to repeat itself.
With KBH declining, despite beating estimates, it tells us that investors in KBH are looking beyond the current news to what could impact KBH in the months ahead. Other housing names are showing bearish trends too. Look at Meritage Homes (MTH).
KBH peaked back in the first quarter of 2013 and again in the first quarter of 2014 (see chart, above). Prices dipped under $12 earlier this year before rebounding. KBH peaked in late June and has traded irregularly lower since. While there is some chart support for KBH above $13 back in March, we cannot rule out a return to the $12 area considering the overall weak condition of the broad market.