Stocks & Commodities V. 31:13 (23): PulteGroupís Bearish Breakaway Gap by Donald W. Pendergast Jr.

Stocks & Commodities V. 31:13 (23): PulteGroupís Bearish Breakaway Gap by Donald W. Pendergast Jr.
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PulteGroupís Bearish Breakaway Gap by Donald W. Pendergast Jr.

Shares of PulteGroup have enjoyed a massive runup in price since October 2011, but a new bearish breakaway gap is warning of a major reversal in trend.

Home construction stocks are among the more cyclical of stock industry groups, with some issues able to mount incredible rallies ó or declines ó in relatively short periods of time. Hereís a look at PulteGroup (PHM), a recent high-flier stock from the construction services industry, which just printed a powerful bearish breakaway gap ó one that is very likely warning of a substantial trend reversal in the weeks and months just ahead.

PulteGroup (PHM) achieved a major multicycle low on October 4, 2011, and after bottoming out at the bargain basement price of 3.29, the stock went on to soar more than 567% by January 28, 2013, when it hit $21.97. Thatís a noteworthy trend move in anybodyís book, but the unexpected arrival of a major intraday reversal (down by more than 5% in early morning trading) and bearish breakaway gap may now be signaling the death knell for PHMís powerful bull run (Figures 1 and 2).

PHM, like many large-cap stocks, tends to spend most of its time trading within the bounds of its two inner Keltner channels (red bands); the stockís latest surge upward since mid-November 2012 was only able to make a few daily closes above the band, with the bears ready to sell short at a momentís notice.

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