Joe Duarte is marching stocks with his markets, economy, life (MEL) analysis.
Investors who are in tune to the changes in the markets, the economy, and people’s lives (MEL) complex adaptive system and how it works will likely fare better than those who think of the world in traditional terms. A great example is the price action of DR Horton (DHI), the largest homebuilder in the United States. DHI is a perfect MEL stock (see chart below).
Here is how MEL works. The financial markets have become the primary driver in the economy as zero interest rates push stock prices higher. This market effect raises the value of 401Ks and other investment accounts. What then follows is that people feel as if they have some wealth and are more willing to spend, especially on big ticket items such as cars and houses which are sometimes financed by borrowing from retirement accounts such as 401K plans. In turn, these decisions drive the economy and the circle is completed as MEL moves onto the next level.
All of which brings me to DHI, a company which is a primary benefactor of the current state of MEL. Because it is at the demographics crossroads between millennials looking to form families and empty nesters looking to downsize, the company has already benefited heavily over its last several quarters. Moreover, with low interest rates forever, rising demand, Covid-19 and social unrest driving decision making, DHI is well positioned to continue its steady business. This means that the odds of the current stock breakout holding and extending are pretty good.
Indeed, the stock just cleared a huge shelf of resistance at $62 on very encouraging Accumulation/Distribution and On Balance Volume. A reasonable short to intermediate term target, barring a market related event or other external surprise is the $75 area.
I recommended DHI to my subscribers on June 23, well ahead of its breakout.
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