PreMarket Prep Stock Of The Day: PulteGroup, Inc.

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

One strategy that has been rewarding shareholders over the course of time has been “buy the dip.” Yet investors need to be careful not to blindly employ the strategy, as many stocks do not recover immediately — or ever.

Along these lines, it is important to follow the price action in an issue after fundamental news such as earnings is released to determine whether it is prudent to go long.

On Thursday, investors were contemplating whether to buy the dip in PulteGroup, Inc. PHM after a shellacking following a second-quarter earnings miss.

Pulte Stock Weak Into The Report: On many occasions, a good tell on how a company will react after an earnings announcement is to see how the Street was leaning into the report.

In other words, were investors accumulating shares of the issue in anticipation of a good report, or selling shares due to being uncertain about the result?

In the case of Pulte Group, the issue was lower in its previous three sessions, falling from $54.69 to $52.72. In addition, the close on the day prior to the report was only 15 cents off the low for the day.

Pulte's Q2 Miss: Before the open Wednesday, the company reported quarterly earnings of $1.72 per share, which missed the analyst consensus estimate of $1.75.

Also, the company reported quarterly sales of $3.36 billion, which missed the analyst consensus estimate of $3.51 billion.

Pulte's Wednesday Price Action: After a much lower open Wednesday ($49.80 vs. $52.72), the issue attempted to rally and came up far shy of the bottom of Tuesday’s range ($52.57), only reaching $50.84, and reversed course.

The much lower open attracted the first round of the “buy the dippers,” and when a rally failed to materialize, those buyers joined the shareholders long into the report.

Therefore, the longer-term sellers now how to contend with new buyers who are trading in a shorter time frame and did not hesitate to trim their losses when the issue failed to hold the opening price.

The issue continued lower and ended the session only a few pennies off the low of the day ($49.51) at $49.5.  

Once, again, Pulte stock's inability to distance itself from the low of the day did not bode well for Thursday’s price action.

Where's The Support? When attempting to buy the dip or invest in a longer time frame, longer-term charts are a valuable tool.

After an extended bull run off March 2020 that persisted until May, monthly or weekly support should be monitored.

With respect to PulteHome Group, its August low ($51.37) was breached Wednesday. More importantly, so was its July low ($50.01).

With its next monthly low not coming until the March low ($42.31), investors for the time being do not have a monthly level to lean on for quite some distance.

The Weak Get Weaker Thursday: If the price action leading up to the report; the price action on the day of the report; and the lack of monthly support until the lower $40s were not enough to make investors cautious on the issue, then Thursday’s price action should.

Following a lower open (below the prior day's low), the issue only surpassed the close by 4 cents, peaking at $49.57, and resumed its move lower.

The stock ultimately lost 2.12% in Thursday's session, closing at $48.48. 

Pulte Stock Moving Forward: Investors wanting to go long the issue who do not think it will go to the March low ($42.31) may want to wait until the issue at least stops going down.

Better yet, if the downward momentum stalls or slows at the area of major daily support, then a reference point could be established to attempt to go long, with an identifiable exit point if a rally does not materialize.

Based on the daily and weekly charts, the issue is approaching an area of multiple daily lows surrounding $48. The reason being: the issue put in a string of seven consecutive daily lows in mid-March from $47.31 (the low for the move) up to $48.22.

That support area provided the foundation for the issue to rally to its all-time high ($63.91) in March.

Posted In: PreMarket PrepEarningsNewsTechnicalsTrading IdeasReal Estate