KB Home faces a bearish outlook due to high interest rates and a downward technical trend leading into earnings.

Yes, KB Home is known for building homes for first-time buyers, a type of home that is built to order. But we can see KPH’s remarkably poor performance here in red, down 23.3% against XHP’s Homebuilding Index Fund, which is down 12.8% against S&P’s 16%.

This stock is included in the XLY Consumer Discretionary Fund, which is not its best benchmark, although it is a very broad category.

Higher interest rates make mortgages less attractive, and therefore people may want to stay in the homes they acquired with relatively low mortgage interest rates. Therefore, looking at the overall price trajectory, we see a downward trend line from those higher levels that we can connect here.

Around 67 is the level at which we previously reached the peak. Our lowest point is 44. We can also draw another upward-leaning path here. But in reality, we are now heading towards announcing earnings. Many things may change.

Therefore, the horizontal levels to watch here are around 47 and 44 as I mentioned, which represent those old lows. Meanwhile, on the upside, we are watching the 50 and 54 levels because of this recurring level that we saw before the price collapse.

As we move towards the earnings announcement, we can then evaluate our moving averages. They are lined up in a way that is more inclined to land here. We have the faster averages below the slower averages here.

Our 5-day exponential moving average, shown in dark blue, 48.23, represents one trading week. Therefore, things are pointing more towards the downside. We can also see the Relative Strength Index trending upwards here, although it is common for it to slow down before earnings announcements. We are still below the midline at the 50 level.

Trading volumes are concentrated here and there around the 48-50 level, and the 51-53 level. Also note the very heavy trading volume as we approach this earnings announcement event. It is unusual to see that.

Well, given the interest rate environment and the overall pattern of downward movement we are seeing here, perhaps a more bearish trade would be the better approach.

Looking at November here, in our green box, we can see an increase or decrease of approximately 14.2%. So, the "put butterfly" strategy is here. Buy one "Boat Butterfly" for November 20 at prices of 50, 45, 40 for a cost of 130.

Bearish outlook, with 59 days left until expiry here. The maximum loss is 130, which is the cost we paid. Maximum profit 370 if the contract ends exactly at our short strike price.

Our break-even point is approximately 13.7% on the downside. This is where our winning deal will start to turn into a losing one again. Our expected movement is 14.2%. Therefore, you don't have to hold onto it all the time if we see a strong move due to profits. You can simply close the deal.