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Has Centex Corp. Turned The Corner?

04/30/07 09:37:51 AM
by Gary Grosschadl

After falling from $58 to $41, a bottom may be in for this Dallas, TX–based leading home building company.

Security:   CTX
Position:   Buy

Figure 1, this daily chart, suggests a bottom was hit late this past March via a hammer-like bottom. The long tail or lower shadow is indicative of the stock reaching for a bottom. The small upper shadow rules out a hammer candlestick, but it certainly acts like one.

Several indicators below the chart lend themselves to timely buy signals for those traders playing the bottom bounce. The moving average convergence/divergence (MACD) managed a bullish cross shortly after the hammer-like signal. Now that it has risen above its zero line, another buy signal may be flashing. A rise above the MACD zero line often heralds continuing upside. The relative strength index (RSI) and the Chaikin money flow indicator (CMF) both show a positive divergence to price action. As the stock made a lower low, these indicators went the other way with a higher low. This often foretells a coming upleg. Now both indicators have a further bullish intent; the RSI rose above the often key 50 area, while the money flow indicator has moved into green/bullish territory.

FIGURE 1: CENTEX, DAILY. CTX is consolidating before the next move, presumed to be higher.
Graphic provided by:
The past nine trading days has the stock in a sideways or consolidation phase with several closes above the 50-day EMA. A close either above or below the rectangle should signal the next move, either up or back down. A bullish thrust up has three trading targets as indicated. The first just above $50 marks previous support, while the higher targets near $53 and $55 represent previous resistance levels. With enough bullishness, a spike to challenge the previous high near $58 is a further possibility.

In summary, it looks as though a bottom reversal is in and the stock is consolidating in a rectangle formation. Look for a close above $47 to signal a push to one of the higher targets. A close below the rectangle (near $44) negates the bullish tone of this analysis.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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