In his recent Real Money column "Prosperity vs. Recession, and the D.R. Horton Journey," Jim Cramer asked, "is it possible to have too much of a good thing?" In the case of homebuilder D.R. Horton (DHI) , the answer is yes.
D.R. Horton has too much demand and the company is running out of houses to sell. Especially in states like fast-growing Texas, the company is turning away buyers. Digging into the company's conference call, Horton cited supply chain issues for critical components like windows and appliances as well as forecasting issues for the shortfall.
No one could have predicted our economy's rebound, nor how the new work-from-home workforce was going to play out, nor how supply chains were going to be disrupted by a surging Delta COVID variant. When you're a homebuilder, you need to be conservative.
Let's check the charts of DHI.
In the daily bar chart of DHI, below, we can see that the shares have been correcting lower since early May. Prices just popped above the declining 50-day moving average line. The slope of the slower-to-react 200-day moving average line is positive and the decline in DHI this month might be considered a test of that indicator.
The On-Balance-Volume (OBV) line shows some weakness from early May but some improvement this month suggesting that the pullback in price may be drawing to an end. The Moving Average Convergence Divergence (MACD) oscillator has turned up for a cover shorts buy signal and is now close to crossing above the zero line for an outright go long message.
In the weekly Japanese candlestick chart of DHI, below, we can see a bullish engulfing pattern in early July to mark a bottom reversal. The slope of the 40-week moving average line is positive and the OBV line is steady.
The MACD oscillator is narrowing toward a future buy signal.
In this daily Point and Figure chart of DHI, below, we can see that prices made a small upside breakout and the software now shows us a potential $109 price target.
In this weekly Point and Figure chart of DHI, below, we can see a slightly higher price target of $112.
Bottom-line strategy: The charts of DHI have begun to improve again after a downside correction. I suspect that the forces that are powering the surge in home buying and relocation are not going to abate anytime soon (imho as a technical analyst) so I want to be a buyer of DHI at current levels. Risk to $84 and look for strength to the $109-$112 area.