The Pennsylvania-based home construction company that specializes in building luxury homes, Toll Brothers Inc. (NYSE: TOL) seems to be poised for a price surge as per its latest charts.
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart, the stock has been trading within a falling wedge pattern during the past few months. This is marked in the daily chart in purple color. A Falling Wedge Patter is a bullish pattern. Currently, the stock has broken out of this pattern, indicating that it has the potential to move further up.
#2 MACD above Signal Line: The daily chart of TOL shows that the MACD (light blue color) is currently above the MACD signal line (orange color). When this happens, a potential buy signal is generated.
This seems like a good level for the price to bounce back.
#4 Unbroken Uptrend in Weekly Chart: As evident from the weekly chart, the stock is in an uptrend as it has been making higher highs and higher lows for the past several months.
The stock price is above the 50-week and 200-week SMA. In addition, the 50-week SMA is currently above the 200-week SMA.
All these are possible bullish signs.
#5 RSI moving up: In the weekly chart, the RSI is currently moving up after reaching oversold levels. This is a possible bullish sign.
#6 Support at Fibonacci Level: The stock has taken support at the 61.8% Fibonacci retracement level before moving up. Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before resuming its previous upmove. So, this 61.80% retracement level seems like a good support area.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of TOL in two scenarios
- If the stock price breaks above the 200-day SMA in the daily chart. This translates to a price of around $44.20.
- If the stock corrects to the breakout level of the falling wedge pattern in the daily chart. This translates to a price of around $42.
For those who want to have a speedier entry, you can buy half the intended quantity of shares at the current price of $43.52.
TP: Our first target price (TP#1) is $50 and the second target price (TP#2) is $60 in the next 4-6 months.
SL: To limit risk, place stop-loss at $39.50. Note that stop loss is on a closing basis.
Our target potential upside is 19% to 43%.
- Entry at $42: For a risk of $2.50, our target rewards are $8.00 and $18.00. This is a 1:3 and 1:7 risk-reward trade.
- Entry at $44.20: For a risk of $4.70, our target reward (TP#2) is $15.80. This is a 1:3 risk-reward trade.
In other words, this trade offers nearly 3x to 7x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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