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DR Horton and the Head-and-Shoulders

07/28/04 10:16:28 AM
by Arthur Hill

DR Horton (DHI) is part of a homebuilding group that has outperformed the market over the last four years. With a head-and-shoulders reversal brewing, things could be about to change.

Security:   DHI
Position:   Hold

Starting with the daily chart, we can focus on the head-and-shoulders pattern. The left shoulder formed from Nov-03 to Jan-04, the head in Mar-04 and the right shoulder from May-04 to Jul-04. The pattern is as picture perfect as they come with neckline support just below 25.

Money flow supports the head-and-shoulders. Chaikin Money Flow (20) peaked in Oct-03 and formed lower highs in March and June. These lower highs show diminished buying pressure on each advance. In addition, Chaikin Money Flow formed lower lows in April and July, which shows increased selling pressure.

Figure 1: Daily chart for DHI.
Graphic provided by: MetaStock.
Despite a robust pattern and weak money flow, the head-and-shoulders has yet to be confirmed with a break below the May low at 24.63. As long as neckline support holds, the bulls still get the benefit of the doubt. A neckline break would project further weakness to around 13 (Note: The length of the pattern is subtracted from the neckline for a target).

Figure 2: Weekly chart for DHI.

This target seems a bit extreme and the weekly chart shows support around 18. This area is confirmed by broken resistance (turned support) that extends back to Apr-02 and the trendline extending up from Oct-99.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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