Prime Bullish Entry Point for Homebuilding Favorite

Shorts have been piling on of late

Managing Editor
Jun 10, 2024 at 2:48 PM
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Homebuilding giant KB Home (NYSE:KBH) is surging today, up 2% to trade at $69.49 at last glance, building on its 11.1% year-to-date gain. The equity has been working hard to recover from its October lows, recently bouncing back after its January post-earnings slump. While things seem to be looking up, KBH doesn't seem to have hit its ceiling yet, as it nears a historically bullish trendline.

Per Schaeffer’s Senior Quantitative Analyst Rocky White, KBH has moved within one standard deviation of the 80-day moving average. The security has spent a significant period of time above this mark, defined for this study as having traded north of this trendline 80% of the time in the past two months, and in eight of the past 10 trading days.

kbhchart

Per White, three similar signals occurred during the past three years, with KB Home stock averaging a 5.3% one-month gain, finishing positive 67% of the time. A move of this magnitude from the equity’s current perch would put shares at $72.97 -- within a chip-shot of their May 15, 18-year high of $74.65.

KBH stock looks ripe for a short squeeze, which could catch bears off guard, as bearish bets have increased 13.2% in the most recent reporting period. The 6.25 million shares sold short account for 9.4% of the stock’s total available float. At the equity's average pace of trading, it would take shorts five trading days to buy back their bearish bets.

What's more, options traders have been extremely bearish, with puts garnering ample attention of late. This is per the security's 10-day put/call volume ratio of 2.74 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks higher than 90% of readings from the past year.

 

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