Friday, August 31, 2007

Chart: TOL

As noted in the previous post, I took a position in TOL today. Those familiar with my trading style know I don't tend to buy downtrending stocks. However, I noticed some mean looking divergences that lead me to believe their might be some institutional buying at the current levels. At the least, I'd expect a small bounce that's good for 2 points.

Take a look at the vertical box I placed on the chart. This area highlights the bottoming formation. Note that both RSI and OBV show positive divergence. Now compare volume in the vertical box to that in the horizontal box that highlights volume from March to July. Notice that during the downtrend, volume was typically higher on down days than up days. Now we are seeing the opposite volume trend. Volume is higher on up days.

While I've made a pretty good short term bullish argument, it's still tough trying to pick a bottom. The fact that we are talking about the housing sector, where negative news can come on a moments notice, only increases the degree of difficulty.

The great thing about this trade is we have a clear support zone at $20. If this zone is pierced, we'll likely see another leg down. By placing a stop under $20, I am only risking a little over $1.00. My target is the 50 day moving average, which makes my potential gain almost $3.00. This gives me an acceptable 3:1 reward to risk ratio.

11 comments:

TraderMark said...

With the Bush bailout speech it looks like this trade is going to work out well for you - if should lift the market psychology for the space at least for today.

TraderMark said...

may I ask how you put pictures of charts into your blog entry? I'd like to do it as well. THanks :)

Leon said...

Paul, now i know name :)

It is excellent technical and fundamental outlook for TOL. I like you way of thinking how to make money and i want to imitate your style to achive same results. Thanks and congratulations with future profit from TOL.

Best regards,
Leon

Tushar said...

Great Call on TOL. I dont know how you time your calls so well :)

This blog is my favorite, although I don't trade but I learn from this blog. Keep it Up.

The Market Speculator said...

I'm not sure why the Bush bailout will help. He's already stated he won't provide federal aid to subprime borrowers. Anyway, I try to ingnore the news when trading.

Blogger has an easy-to-use interface for adding pics.


Thanks Tushar and Leon. I've had a good run, but I dont' expect the win rate to say this high.

TraderMark said...

I thought TOL would be much higher on this news
It only affects 80K borrowers but just for psychological sentiment alone some of the other home builders opened up 7-8% up. Strange TOL is only 1-2%. Hmmm

TraderMark said...

LDK looks like quite a breakout chart.. might want to keep it on your radar

Leon said...

Take a look at EXM, i bought today @41 with short @40 just before breakout and waiting for big gap up on monday.

Leon said...

ups. CORRECTION "with short @40" read as "with stop @40"

leon said...

hmm.. not monday. We have a Labor day on monday and market is closed.

leon said...

Closed EXM @44.5 in pre-market.