While US homebuyers tightened their wallets when unemployment exploded during the first wave of the pandemic, homeowners benefited from record low borrowing rates. Demand for housing refinancing has risen 107% year over year over the past week, and the overall week-over-week increase was 5.1%, in line with another sharp drop in mortgage rates, which have since dropped by 63 basis points at the end of March
So we searched mortgage lenders, whose business is booming, and found one that caught our attention: PennyMac (NYSE :).
Daily PennyMac Mortgage Investment Trust Technicals
The share price has developed a potential flag. Frankly, we prefer falling flags in an upward trend as it suggests a dynamic where tired bulls make a profit and make room for new bulls to come in with new energy to take the stock up a notch.
there are other technical patterns that have the same dynamics. Still, cautious traders have to wait for a decisive upward outbreak to show that demand has absorbed all of the available supply within the pattern and is not satisfied, allowing buyers to raise their prices to find new, willing sellers.
The price was forced to consolidate only after the March 26 high of $ 14.64. The stock broke that resistance on June 5 with an escape hole, which provided support shortly after on June 11.
After a mind-boggling 124% increase in the two trading weeks that followed, the bulls came to a full peak and benefited from the resistance point of the declining divide of March 12, the significance of which is underscored by a red peak , in the form of the 200 DMA. The 50 DMA exceeded the 100 DMA as prices rose.
The same 200 DMA warns traders of the importance of the flag. The volume climbed with the price until it stopped at the top of the flagpole and has been declining ever since. RSI has developed its own falling flag.
All these individual items show that the current price break is not just a random congestion, but probably the deep collective breath traders take for the next push.
Note that while the price closed above the top of the range yesterday, the candle developed a small body, reflecting indecision as it closed below 200 DMA. This was further confirmed by a low volume, as the RSI also did not break out. The Rate of Change registered … well, no change.
Therefore, we are waiting for a decisive upward breakthrough to convince ourselves that the move will not be just a random walk on the map, but rather a concerted effort to increase positioning.
We would like to see the price broken by both the 200 DMA and the $ 18.72 resistance level from the declining divide of March 12, also supported by an outbreak in volume. Should such a move occur, we would bet on another leg higher in the overall upward trend.
Trading Strategies
Conservative traders would wait for a long position for a lock above $ 20, then wait for a withdrawal to retest the flag.
Moderate traders would be satisfied with a close above $ 18.72 above the declining gap, then wait for a return move for better access, if not for a retest of support.
Aggressive traders can go long on a return to the bottom of the flag, or with a lock above 200 DMA.
Trade Sample
Admission: $ 18
Stop-Loss: $ 17
Risk: $ 1
Target: $ 22 – conservative flagpole benchmark
Reward: $ 4
RRR: 1: 4
