Builders FirstSource, trading on the NYSE as BLDR, shows a positive outlook using Elliott Wave Theory. The stock has experienced a strong rise, reaching the high of wave (I) before entering a corrective phase. This correction formed a W-X-Y pattern, likely ending at wave (II) within a blue box support area. During wave (II), prices tested key Fibonacci levels around 118.91 and 66.76. These levels provided strong support, helping stabilize the market. The Right Side tag supports a bullish outlook as long as prices stay above these support levels. After stabilizing, BLDR began to rise again, suggesting that wave ((1)) of a new bullish cycle is starting. With wave (II) possibly finished, wave (III) is expected to push prices sharply higher. Historically, third waves are often the longest and strongest in Elliott Wave patterns, frequently surpassing previous highs. This phase may challenge recent highs and aim for new all-time records, driven by strong momentum and favorable conditions. The overall bullish trend suggests that selling the stock is not advisable. As long as the price stays above the invalidation point and the bullish pattern holds, the market outlook remains bright. The technical analysis for Builders FirstSource indicates that the lengthy corrective phase, wave (II), is now over. The stock appears to have found a significant bottom within the noted support zone for 2025. This points to a clear upward path in the coming weeks and months. This optimistic view is supported by improving fundamentals. The slowdown in the housing market in 2025, marked by rising mortgage rates, seems to be reversing. The December 2025 housing starts report showed a 4.2% increase, surpassing analyst predictions. This positive economic shift suggests that a new upward wave in the stock is starting now. For derivative traders, this is a good time to position for upward movement. We recommend buying at-the-money or slightly out-of-the-money call options with March and April 2026 expirations to benefit from the initial rise of wave (III). Using bull call spreads could lower entry costs while managing risk. Another strategy involves selling cash-secured puts or bull put spreads on minor dips. A brief pullback for wave ((2)) could raise implied volatility, making premiums for sellers more appealing. We view the lows from the fourth quarter of 2025, around the $165 mark, as a solid support level to consider for selling. Historically, the third wave in an Elliott sequence is the strongest, often yielding greater gains than the first wave. The rally from the 2022 lows to the 2024 peak serves as a guide for the strength of this next move. Thus, we believe that being under-invested or trying to short this stock would be counterproductive against a strong primary trend.

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