Homebuilding Powerhouse Has No Ceiling in Sight

Lennar premium is affordably priced at the moment

Sep 25, 2020 at 12:23 PM
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Earlier in the week homebuilding powerhouse Lennar Corp (NYSE:LEN) reported fiscal third-quarter results that penned a strong performance and upbeat outlook. Despite modestly underperforming its sectors peers for growth, the equity quickly bounced back and marked a session gain the following day. In fact, LEN has built a reputation for navigating an impressive recovery, with the most recent example being its climb from the infamous broader-market crash of mid-March.

Not only has Lennar stock more than tripled from its March 18, seven-year bottom of $25.42, but it now tallies a 40% year-to-date gain. Aiding the stock to this surge in technical outperformance has in recent months, been the ascending 40-day moving average. A sharp swing from resistance to support back in late April began the branding of support for the trendline, and has since captured multiple pullbacks.


Even further, Lennar stock’s unmarkable run higher could still have even more room for improvement, if past is precedent. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been three other times in the past five years when the stock was trading within 2% of a 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower -- as is the case with LEN’s current SVI of 42.8%, which sits just above the 16th percentile of its 12-month range. The data shows the security was higher a month later, averaging a return of 10.7%. From its current perch, a move of similar magnitude would put LEN above the $86 mark, a level that has yet to be reached by the security. Upgrades may be on the horizon as well, with six covering analyst sporting a tepid "hold" recommendation on LEN, heading into today’s trading.

In the options pits, meanwhile, puts have been extremely popular. The equity's 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) now sits higher than 79% of readings from the past year, meaning puts have been picked up at a faster-than-usual pace. Echoing this, Lennar stock sports a Schaeffer's put/call open interest ratio (SOIR) that sits in the 75th percentile of its annual range, meaning short-term options traders have rarely been more put-biased as of late.

Lastly, Lennar stock's Schaeffer's Volatility Scorecard (SVS) sits high at 92 out of 100. In other words, the security has tended to exceed option traders' volatility expectations during the past year -- a boon for options buyers. In closing, this impressive technical outperformance combined with affordable pricing, makes the equity look ripe for a continued run higher on the charts. This (most literally) record-breaking climb seems to be far from its technical ceiling, making now the perfect time to jump aboard LEN with options.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, September 20.


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