In his "No-Huddle Offense" segment of "Mad Money" Thursday, Jim Cramer said sometimes simple questions have simple answers. So when investors ask why stock prices are roaring to new highs, the answer simply could be that companies are doing a lot better than they once did.
Case in point is home builder Lennar Corp. (LEN) , which this week posted a textbook better-than-expected quarter. Most home builders would be making big bets in a roaring bull market, such as building too many homes. But Lennar learned its lesson in 2008 and is not taking such risks. The company is keeping its balance sheet clean and is making prudent decisions for the long term.
Let's check and see if the charts look clean, too.
In this daily bar chart of LEN, below, we can see two legs higher over the past year. Prices are trading around the declining 50-day simple moving average line but above the rising 200-day moving average line. The 200-day line was tested in late July and with hindsight we can see that was a buying opportunity. The daily On-Balance-Volume (OBV) line does not show much of an uptrend over the past year, but there is a rise from July to October. The weakness from October tells us that sellers of LEN have been more aggressive. A more promising picture would be if the OBV line rose to a new high. The trend-following Moving Average Convergence Divergence (MACD) oscillator has crossed to the upside for a cover shorts buy signal. A crossing of the zero line from below would be a buy signal but we will have to wait for that to unfold.
In this weekly bar chart of LEN, below, we can see the activity of the past three years. Prices have rallied from late 2018 and now stand above the rising 40-week moving average line. The weekly OBV line shows a rise over the past year, but like the daily line has been in decline since October. A stronger OBV line would help the picture look more bullish. The weekly MACD oscillator is in a take profits sell mode but could cross to the upside depending on prices going forward.
In this first Point and Figure chart of LEN, below, we used daily price data. Here the charting software is projecting a nearby but lower price target around $54.
In this second Point and Figure chart of LEN, below, we used weekly close-only data to construct the chart. With this approach a potential longer-term price target of $91 is projected. Ambitious.
Bottom line strategy: Overall, the charts of LEN are mixed. Not extremely bearish and not pound-the-table bullish. Traders could take a small long position risking a close below $54 and investors could wait to buy a close above $62.
