To The Moon

I have been bullish on the homebuilders sector since last year. We have seen a nice run, with the $SPDR S&P Homebuilders ETF(XHB)$ up over 30% since I first mentioned it last November.

I have been profitting from this ETF by selling cash secured puts. However, recently there has been a selloff and my most recent trade ended up with a -5% loss.

XHB Put Chart

I decided to get out of the trade as it was not able reclaim a previous resistance. This is to prevent getting caught in a potential downturn which eventually happened. Exiting a cash-secured put position at a loss demonstrates a disciplined approach to risk management. Cash-secured puts offer the potential for generating income while providing downside protection, but they can turn negative if the underlying stock price falls significantly. By exiting the trade when resistance levels weren't breached, I avoided potentially larger losses if the stock continued to decline.

This highlights the importance of recognizing and respecting resistance levels in technical analysis. These levels represent price points where the stock has struggled to break through in the past, often due to increased selling pressure. Identifying and exiting a trade before the price falls below support demonstrates a sound understanding of technical analysis and a commitment to managing risk.

XHB Daily Chart

Currently it is down 7% from its high and I am hoping to see more drop. With the homebuilder sector experiencing a correction, $D.R. Horton(DHI)$ has emerged as a stock to watch. DHI is a leading homebuilder known for its focus on affordability and operational efficiency. A price point around $131 could be an attractive entry point, especially if the correction deepens. This price target could represent a good value proposition based on the company's fundamentals and future outlook.

DHI Daily Chart

The homebuilding sector is cyclical, with periods of expansion followed by periods of contraction. Understanding this cyclical nature is crucial for timing potential investments. I am hoping to enter a position before July, which is historically a slower season for home sales, and could be well-positioned for the next upswing.

Historically, homebuyer demand tends to soften during the summer months due to factors like vacations and back-to-school preparations. This seasonal slowdown can sometimes lead to lower stock prices for homebuilders. Entering a position before the traditional summer lull could allow me to capitalize on any potential price dips and position myself to benefit when demand picks up again.

Disclaimer: It's important to remember that this analysis reflects my views and is not financial advice. Before making any investment decisions, it's essential to conduct your own research and consider your risk tolerance.

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Read my previous post: Sell Put Options Trade Idea