Medium term
Trade view / 18 May 2015 at 13:46 GMT

Toll Brothers looks to build a rally

Trader / TheSteadyTrader.com
United States
Price target:
Market price:
Background

Shares of US home building companies rallied last week on the back of lower interest rates and also in part due to some positive comments out of research company MKM Partners.  
 
Like many interest-rate sensitive parts of the stock market, home builder stocks suffered in April as US interest rates rose due to the violent global bond sell-off. The bond smack-down, however, looks to have been overdone in the near-to-medium term, which should help home builder stocks to push higher.
 
Many investors continue to point toward the slumping price of lumber, calling it a preview of what's in store for housing stocks. While I don't disagree with this, it would be ignorant not to also respect the positive housing data of recent months, including the spike in hiring in this space. 

Shares of home builder Toll Brothers Inc (TOL:xnys) also showed promising price action last week as it lifted off a confluence area of support and rallied more than 2%, leaving it 6% above the early May lows. From this perspective the selling pressure in April for TOL stock looks to have consolidated the sharp rally from last November, which is to say that I would label this as constructive consolidation for now.

Toll Brothers Inc

Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more

Over on the daily chart we see that the April selling found support at the support line from last October, which coincided with the 200-day simple moving average (red line). We can also see that last Friday's 1.82% lift pushed the stock marginally above the April 23 lows, when the stock gapped lower. 

The price action here is constructive for TOL stock to push back into the high $30s, barring any major reversal higher again in interest rates.  

Toll Brothers Inc

Source: eSignal

Management and risk description

US equities year-to-date have largely been focused around movement in interest rates and in the dollar. As such, particularly when traders are getting involved in interest sensitive stocks, it is vital to keep an eye on bonds as well as the US dollar.

Parameters

Entry: Buy the CFD at $37.50 or higher.

Stop: $36.50.

Target: $39.

Time horizon: 2-4 weeks.

— Edited by Oliver Morrison

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Non-independent investment research disclaimer applies. Read more

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