Figure 1: The weekly chart of Pulte.
|On the weekly chart, PHM has been in a strong uptrend since the low in March, 2000. Interestingly, this was when the Nasdaqs peaked and the so-called bubble began to deflate in what can be classified as a move from techs to bricks. There is a long trendline extending up from March, 2000 that has been touched three times. This trendline extends to around 50 and the long-term trend favors the bulls as long as it holds. The breakout to new highs in May, 2003 (green arrow) was the latest signal on the weekly chart. Broken resistance turned into support around 56.5 and this is the first level to watch for signs of weakness.|
|Figure 2: The daily chart of Pulte.|
|Graphic provided by: MetaStock.|
|Turning to the daily chart, PHM declined with a sharp move from 72 to 58. Was this just a correction or the start of an extended decline? The key resides with the rising price channel that formed over the last few weeks (magenta trendlines). The pattern looks like a rising flag, but the advance is 27 days old and flags are usually less than 15 days. Nevertheless, the pattern is a rising consolidation and these are typical for countertrend rallies or bearish consolidations. Furthermore, the advance retraced a little over 62% of the prior decline. This Fibonacci number marks a classic retracement level (end point) for countertrend rallies.|
|A break below the lower trendline and support at 63 would signal a continuation of the prior decline (72 to 58). If the prior decline was the first leg down, then a continuation or second leg down would be expected to extend below 58. There is a lot of support around 55-60, but this would not be expected to hold and a move to the lower trendline on the weekly chart would be more realistic (low 50s).|
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