Key Takeaways:
Homebuilder stocks are beginning to stabilize after a sharp correction, with technical patterns in Toll Brothers and Lennar suggesting the sector may be setting up for a rebound, according to Doug Busch, senior technical analyst at Barron's Investor Circle.
"The stock appears poised for a bullish MACD crossover, with momentum improving from a higher low relative to the signal recorded at the start of April," Busch said of Toll Brothers.
Toll Brothers, a luxury homebuilder, has advanced 29% over the past year compared with a 6% gain from the State Street SPDR S&P Homebuilders ETF. The stock recorded a bullish inside week last week, ending a four-week losing streak. A double-bottom pattern has emerged near the $125 level, an area that acted as resistance last summer before turning into support twice during the fourth quarter. The failed breakout above the $149.89 cup-base pivot on Feb. 4 marked a key turning point, with a doji candle followed by bearish shooting-star patterns on Feb. 12 and Feb. 18 confirming the loss of momentum.
Busch sees an entry at current levels near $135, with an add trigger above the $153.98 pivot. The longer-term target is $195 by early 2027, representing 46% upside. He recommends remaining bullish above $128.
Lennar, one of the largest U.S. homebuilders, has lagged the group, down 16% over the past year while the ITB benchmark is higher by 1%. But the stock has started to show outperformance against the ETF over the last seven weeks on a ratio chart basis. Bullish RSI divergence has emerged, with RSI forming a higher low in March and May even as price recorded a lower low. Round-number theory has also come into play at the key $100 level, which previously acted as support last June, December, and January before turning into resistance in April.
The stock remains 38% below its 52-week high, but recent price action has improved. A bullish harami on May 19 was followed by a doji candle the following day. Last week, Lennar rallied 8% and printed a bullish weekly engulfing candle as the ITB gained 5%. The stock reclaimed its 21-day exponential moving average on May 21 and tested the 50-day simple moving average on May 22.
Busch sees an entry at current levels near $89, with a target of $110 by the fourth quarter, corresponding to 24% upside. He recommends remaining bullish above $82.
The iShares U.S. Home Construction ETF fell to its lowest level in 13 months last week but finished on a constructive note, with the 10-year closing near the top of its weekly range on the strongest volume seen in 10 weeks. The technical patterns in TOL and LEN suggest buyers may be stepping back into the homebuilding sector after the pullback. Investors will watch whether the stocks can hold above their respective support levels of $128 for TOL and $82 for LEN in the weeks ahead.
This article is for informational purposes only and does not constitute investment advice.
