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Taylor Wimpey share price drops back after costs warning

Taylor Wimpey’s warning about a rise in costs prompted the shares to drop back from their year-to-date high last week, dragging other homebuilder stocks with them.

Why has the Taylor Wimpey share price suffered losses?

Taylor Wimpey warned that cost inflation for 2019 would hit 5%, likely putting downward pressure on margins. Previous forecasts had assumed cost pressures of 3-4%. While the increase is not huge, it was enough to prompt some weakness in the share price, albeit coming off the back of 54% rise since the December low.

‘It is better to travel than to arrive’ is a saying that is handy in situations such as this. Such a huge bounce leaves the shares vulnerable to a bout of disappointment, or a hit from the famous ‘profit-taking’ that is so often deployed as an explainer for market movements. The outlook for the company remains encouraging, with full-year sales expected to be ahead of last year. Meanwhile, the price-earnings (PE) ratio remains relatively low at 8.5, in line with the broader sector, and the yield is 8.5% when the special dividend is included.

Is there a shorting opportunity for Taylor Wimpey shares?

While the volatility seen in the firm’s shares since 2015 has meant that, essentially, they have made little progress (excluding dividends) over the past four years, when they first neared 180p, the long-term uptrend from the 2009 low is firmly intact. Indeed, having gone sideways since the end of 2014, the shares may now be on the cusp of a breakout from long-term resistance around 185p.

Further gains target 252p, 371p and then 454p, the latter being the record high. In the shorter term, the price has found support from the rising trendline from the December lows. A break below 180p would be bearish in the short term, bringing 170p and then 163p into view as possible support.

The 185p area will be an area of strong resistance, but in both the monthly and daily time frames the trend is still firmly up. The post-results weakness is hardly surprising, and Brexit provides a reason to be cautious on the sector, but it is hard to argue that the more bullish outlook here has been seriously affected.

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