COULD LENNAR BE BUILDING THE FOUNDATION FOR A RALLY?

Until this month, Lennar Homes' stock along with the rest of the homebuilding sector has been a laggard versus the broader market. Now, however, the low put in at the end of July / early August looks like a springboard to a sustainable rally. Sustained low interest rate environment may be helping LEN bulls Lennar Homes' fate over the last several months has been clearly linked to the continued tapering efforts on the part of the FOMC. Perhaps the reality is setting in that despite the tapering efforts, US interest rates may stay subdued under 3.036% (January's high) for an extended period of time. Why is this possible? How about because the powers-that-be simply need them to remain range-bound below that level. If rates go shooting higher in an unruly fashion, our ability to service our own debt could become a problem – not to mention the grumpiness that the paper losses could cause to some of our creditors. There are any number of other economic, demographic and systemic factors that all line up to keep those pulling the strings doing so from the dovish side of the fence. Whatever the reason, while a short-term rise in the 10-year US Treasury yield from 2.4% to just over 3% may occur, there is a very good likelihood that 3.036% (or right around that level) will be where rates are capped for the foreseeable future. That being noted, LEN stock peaked out in February most recently after a nice 50% run that began last August. The pullback that ensued retraced about two-thirds of that rally and stopped almost dead on the spot where an “abc” correction should stop. Since that low, LEN – and the rest of the homebuilders – have ripped higher. The chart of LEN shows traders a stock that likely may be able to stage a rally up to around $48 after a brief consolidation occurs in the very short-term. Bears seeming a little desperate at this point LEN's bears would be quick to point out that if rates do shoot up to just north of 3% in the short-term that the stock may be under pressure during that time. And, they note, LEN could easily rip through the resistance at 3.036% if inflation becomes an issue. That latter point seems like a bit of a stretch given the recent chatter about global deflation. At best, the bears could see LEN drop a bit to retrace this month's rally. However, they may be overstaying their welcome if they remain short as the $36 level is approached. Technically speaking, the bears have to hope that the late-July / early August low at $35.74 is violated on the downside for them to get more chips on their side of the table. Technicians say to buy if…. • A pullback to support at $35.74 occurs – with stops in place on any close below that level. Technicians say to sell… • Only on a breakdown below $35.74 OR on a continued rally up to the projected target near $48.