"While others are waiting for the next shoe to drop in the stock markets, I believe that the bottom is in," says technical expert Yola Edwards. Meanwhile, in The Internet Wealth Builder she has found a stock that she likes within "the rubble of the U.S. housing market." The stock? KB Home (NYSE: KBH).
Edwards explains, "I'm not saying that the subprime issue isn't significant, but I do believe that it is now priced into the market. It appears that the worst is over for the Dow Jones Industrial Average as well."
A technician by trade, she points out that the market is drastically oversold and the index has traced out a multi-year inverted head and shoulders pattern. Based on this pattern, she notes, a minimum upside target of 14,500 should be expected.
Meanwhile, for those comfortable with an out-of-favor, contrarian play, she sees both fundamental and technical opportunity in the shares of KB Home, a Los Angeles-based builder of single-family homes.
She notes, "Given what's been happening in the U.S. housing market, it should come as no surprise that the current financials are poor. KB Home has seen domestic sales battered by the housing downturn, which has been exacerbated in recent months by tightened lending standards by banks."
The weak housing market, she observes, has "pummeled" the stock, which is well off its 52-week high of $56.08, reached in early February. However, she adds, the share price appears to have completed a "wave 2 correction as it has retraced about 70% of its wave 1 advance from July 2000."
Technically, she contends, second waves occasionally retrace such a large portion of the first wave advance that it seems as though a bear market is back.
However, she adds, "Several bottoming hammer candlestick patterns have emerged at the $29 level, which appears to be defining the conclusion of the declining wave."
Additionally, she points to technical indicators such as MACD, which she notes is "diverging positively and has issued a preliminary buy signal from extremely oversold territory."
She adds that the company also pays an annual $1 dividend yielding a 3.20% return, which appears to be safe. She concludes, "If you believe in buying good-quality companies when they're down, KB Homes offers a great opportunity."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.
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