After a 55% Rally, Be Wary of Traders “Selling the News”

[Trading With Larry Benedict]( After a 55% Rally, Be Wary of Traders “Selling the News” By Larry Benedict, editor, Trading With Larry Benedict With 2023 fast closing out, many stocks are trading at or near all-time highs. One of those is D.R. Horton (DHI), the U.S.’s largest homebuilder (by volume). After bottoming out in late October, it has been on an absolute tear, rallying 55% in just seven weeks. One of the major drivers of DHI’s current rally has been interest rates. Even before the Fed’s recent announcement, the market anticipated that the Fed would cut interest rates early next year. Now the Fed has confirmed that it will pivot to rate cuts (although the timing of those cuts isn’t certain). So let’s check if DHI could be vulnerable to a pullback as traders “sell the news”… Recommended Link [Elon Musk’s “ChatGPT” Could Soon Mint New Millionaires]( [image]( Elon Musk made $180 million on PayPal when he revolutionized online payment processing. $47 billion on SpaceX, when he revolutionized space exploration. And $94.2 billion on Tesla, when he revolutionized the auto industry. He’s about to shock the world again with his version of ChatGPT. And you could go along for the ride if you make [this one simple move.]( [Click here.]( -- The Fed’s Comments In the chart below, you can see DHI’s uptrend that ran through the middle of July. Throughout this period, the Relative Strength Index (RSI) mainly remained in the upper half of its range (above the green line). That showed positive buying momentum. D.R. Horton (DHI) [chart] Source: e-Signal Adding to the bullish sentiment, the 10-day Moving Average (MA, red line) tracked above the 50-day MA (blue line), apart from a brief dip in March. And both MAs trended higher. Yet after peaking on July 20, DHI retraced. The RSI had previously tested and held support (green line). But this time, it continued into its lower band, where it dragged DHI down. That down move got further confirmation from the MAs. The 10-day MA crossed below the 50-day MA and both headed lower. DHI’s down move petered out, though, with a common reversal pattern (orange lines). As the chart shows, the RSI was tracking higher from oversold territory (lower orange line). Yet DHI was making lower lows (upper orange line). This sustained buying trend stopped DHI’s fall and then caused it to rally. That rally accelerated in early November off the back of the Fed’s comments that they may be near the end of interest rate rises. When we [checked in on DHI]( on November 13 (red arrow), DHI had just recently announced its Q4 earnings beat. But the Fed had started walking back its comments, causing DHI to briefly track sideways. Take another look: D.R. Horton (DHI) [chart] Source: e-Signal At the time, the RSI was in overbought territory (upper gray dashed line). And we noted that the RSI would need to clearly reverse before we’d consider any short trade. And as you can see, that was the right call. The RSI tracked sideways (then higher) as DHI’s rally accelerated. DHI broke out to all-time highs. Yet now the RSI is even further into overbought territory (red circle). So how should we approach things from here? Free Trading Resources Have you checked out Larry's free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. Snapping Back As we talked about in November, we need to see a clear reversal from the RSI before considering a short trade. The RSI recently formed an inverse ‘V.’ So it is showing promising signs. Yet for now, we’ll keep a close watch. From here, if the RSI drops below the overbought line, we could quickly see DHI trade back around $140–$142. There’s one other thing to remember when a stock rallies as strongly as DHI… With mean reversal trades, we’re not looking for a longer-term trend. Instead, we take profits when a shock shoots too far in one direction and then snaps back the other way. Regards, Larry Benedict Editor, Trading With Larry Benedict Mailbag Where do you think the homebuilding sector will go following the Fed’s pivot? Let us know your thoughts at feedback@opportunistictrader.com. IN CASE YOU MISSED IT… [LIVE DEMO: Elon Musk’s AI hits 65 MPH]( “I just taped a live demonstration of Elon Musk’s AI in action. [Click here to watch: it’s around 2 minutes long.]( Elon already created an “army of millionaires” with Tesla. Looks like he’ll do it again with his AI. Because unlike ChatGPT, Elon’s AI works in the REAL world. That’s why I think Elon’s AI will be [100X stronger than ChatGPT]( –Colin Tedards [See Elon Musk’s AI in action.]( [image]( [The Opportunistic Trader]( The Opportunistic Trader 55 NE 5th Avenue, Delray Beach, FL 33483 [www.opportunistictrader.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. The Opportunistic Trader welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. 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