My dislike for shares of Lennar (LEN) continues. The trading volume for LEN has shrunk this month and prices have rejected gains at and over $58 (see the candlestick chart below).
Despite Strength, Lennar Is Definitely Not a Favorite
Oct. 3, 2017 12:30 PM EDT
Lennar Corp. (LEN) has been rolling over on my charts the past seven months. Prices were testing the rising 200-day moving average line last month and that key technical support may give way in the coming weeks. Let's look closer at our daily and weekly indicators to see if we can get behind an intelligent strategy.
In this daily bar chart of LEN going back 12 months, below, we can see that a rally from early November peaked in June with a surge up toward $56. That rise could not be sustained and over the next two months rallies toward $55 failed. In August, LEN closed below the then rising 50-day moving average line -- a shorter-term measure of trend. As we moved through the month of August the slope of the 50-day average turned negative signaling a change in trend. LEN declined into early September to touch the rising 200-day moving average line. LEN has tested this longer-term indicator further last month and the upside response has been muted until today's earnings release.
The daily On-Balance-Volume (OBV) line has been telling us to be cautious of the long side of LEN since June when prices made a new high but the OBV line did not confirm. Stepping back, the OBV line has moved sideways since March and is not showing a clear bullish or bearish bias until this past week. The jury is currently out on whether the OBV line will make a new high. The trend-following Moving Average Convergence Divergence (MACD) oscillator is below the zero line and looks like it is struggling to improve.
In this weekly snapshot of LEN, below, we can see that the price of LEN had trouble breaking above $54 back in 2015, in addition to this year's attempt. Prices tested the rising 40-week moving average line last month. The weekly OBV line has been moving lower since July 2015 and suggests that long-term liquidation has been under way. The weekly MACD oscillator is in a bearish mode and pointed down but looks like it could be narrowing toward a possible bullish crossover.
In this Point and Figure chart, below, we just look at price change and reversals. The price action since April (look for the "4" on the chart) shows distribution and failures to break out on the upside. A rally to $56 would be a new high and open the way for further strength. A decline to $49.00 would be a new low on this chart and could precipitate further declines.
Bottom line: As we look to the rest of the month of October we want to be cautious on Lennar. A weekly close above $55 is needed to turn the chart bullish while a close below $50 could easily put the bears in control. Prices gapped to the upside on the opening Tuesday and have retreated from their best levels. I have no strong clues on where prices may close today but if this is another rally failure and we close weak then October is probably not going to be a good month for Lennar.