D.R. Horton (DHI) has been correcting lower for the past five to six months. However, prices have stabilized in recent weeks and downside momentum has slowed, both of which are foreshadowing the potential for some price improvement in the new year. Let's inspect at the indicators and charts before closing on a conclusion.
In this one-year daily chart of DHI, below, we can see that prices are below the declining 50-day moving average line and the still rising 200-day average line. Volume was heavy in November as prices touched a new low for the move down but prices have not broken that low. The On-Balance-Volume (OBV) line declined from mid-July until mid-November but has been moving sideways since November. The 12-day momentum study shows a bullish divergence since September as prices made lower lows but momentum readings made higher lows. This divergence tells us that the pace of the decline has slowed and this can foreshadow a price rally.
In this three-year weekly chart of DHI, below, we can see that prices are below the flat 40-week moving average line. The weekly OBV line has been weakening the past five months. The weekly Moving Average Convergence Divergence (MACD) oscillator is below the zero line but the two averages that make up this indicator have begun to narrow and this could become a cover shorts buy signal.
Bottom line: Aggressive traders could go long DHI at current levels risking below $26 and add to longs above $30. A rally toward $34 could materialize as we move into 2017.
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In the past three years, PLNT bulked up from $20 to $80 and now a major correction to the $50 area -- a 50% correction -- would not be a surprise.
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