Pulte Home Firms With Piercing Pattern

09/11/06 02:51:38 PM

by Arthur Hill

Pulte Home managed to firm over the last few months, but bulls have yet to prove their mettle. Here's what to watch for.

Security: PHM
Position: Hold

Let's start with some perspective by looking at Pulte Home (PHM) over the last nine months. The stock declined in January, consolidated February to April, declined late April to early June, and then consolidated again from mid-June to early September. The first consolidation lasted around three months and the break below the May lows signaled a continuation lower. The current consolidation is about three months old and a move below the consolidation lows would signal another continuation lower.

FIGURE 1: PULTE HOME. Signals within the consolidation are mixed. A glance at the chart indicates that the accumulation-distribution line is flat, but volume on up days (green bars) has been stronger than volume on down days (red bars) since mid-July.

Graphic provided by: MetaStock.

Signals within the consolidation are mixed. A visual look at the volume bars shows that volume on up days (green bars) has been stronger than volume on down days (red bars) since mid-July. This is positive and shows evidence of accumulation. However, the accumulation-distribution line is flat and this does not confirm the volume bars. Perhaps there is not as much accumulation as the volume bars would have us believe. Despite some relatively high-volume up days, the stock and the accumulation-distribution line remain range-bound (Figure 1). A breakout in one or the other is required to end the deadlock.

FIGURE 2: PULTE HOME. Price action, however, shows that there is support around 26–27 and the stock formed a piercing pattern recently.

Graphic provided by: MetaStock.

Looking closer at price action, there is lots of support around 26–27 and the stock formed a piercing pattern last week (Figure 2). This two-candlestick pattern occurs when the open is below the prior low and the close is above the midpoint of the prior black candlestick. The pattern requires confirmation, and a break above the prior high at 30.1 would do the trick. As long as this resistance level holds, the piercing pattern is unconfirmed and this consolidation could be resolved like the February–April consolidation (with a downside break). A move below 26 would open the door to further weakness toward 20.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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