A Double Bottom For Hovnanian?

08/01/08 12:16:09 PM

by Arthur Hill

Hovnanian has a huge double-bottom pattern working over the last seven months and a high-volume surge off support points to a big resistance test ahead.

Security: HOV
Position: Accumulate

"Potential" is the key word here. The overall trend is down as the stock remains well short of the breakout required for confirmation. Double-bottom resistance is around 13 and a move above the March high is needed to confirm this pattern. Such a break would also forge a higher high and project further strength toward the mid-20s. The length of the pattern is added to the breakout point for a target. See Figure 1.

FIGURE 1: HOV, WEEKLY. The overall trend is down as the stock remains well short of the breakout required for confirmation.

Graphic provided by: TeleChart2007.

On the daily chart (Figure 2), the stock got a nice bounce off support with a gap and a high-volume surge. This gap held and broken resistance turned into support around 6. The gap and breakout are valid as long as both hold. A move below 5.75 would fill the gap and negate this breakout. Since a strong breakout should hold, a move back below 5.75 would show weakness and question bullish resolve. As long as the breakout holds, HOV looks poised to challenge its resistance zone in the 11-13 area. Once HOV gets here, we can start taking the double bottom seriously.

FIGURE 2: HOV, DAILY. The stock got a nice bounce off support with a gap and high-volume surge.

Graphic provided by: TeleChart2007.

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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