Stock Of The Day: Is Home Builder Lennar About To Rally?

Shares of homebuilder Lennar Corporation LEN are trading higher Tuesday. A new rally may be about to start.

This is why our team of technical analysts has made it our Stock of the Day.

Most of the time a stock stays within its usual or typical trading range. But sometimes traders who are selling can become emotional and aggressive and push it below this range. When this happens, traders say the stock is oversold.

The bottom part of the chart is the Relative Strength Index (RSI) momentum indicator. When the blue line crosses below the horizontal red line it indicates oversold conditions. As you can see, that's the case now.

Lennar is the most oversold that it has been in almost five years. The last time it was this oversold was during the COVID-19 pandemic crash. As you can see, a major rally followed. The stock more than tripled in six months.

The chart illustrates how price levels that had been peaks or tops can turn into support.

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The $71 level was a peak for Lennar in February 2020. In July 2020 this resistance was broken and the level converted into support.

The $134 level was a peak in July 2023. In December 2023 this resistance broke. Now the stock is getting back close to this price and if it does, there is a good chance it converts into support as well.

Resistance converting into support is a common occurrence in the stock market. It happens due to investor and trader psychology.

There are people who sell at the peak and regret doing so if and when the price eventually moves higher. Many of them decide that if they can buy their shares back at the same price they were sold for, they will.

As a result, if the stock eventually drops back to its selling price, they place buy orders. If there is a large number of these orders it will create support at the same price that was resistance.

Of course, it's too soon to know what will happen. But there is a chance Lennar is on the verge of a reversal and a large move higher.

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