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 thoughts on “Chart: TOL

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  1. 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

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  2. 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.

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  3. I thought TOL would be much higher on this newsIt 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

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