The homebuilding company based in Los Angeles, California, founded in 1957, KB Home (NYSE: KBH) seems to be ready for a price surge in the near-term.
Bullish Indications
#1 Ascending triangle pattern Breakout: KBH’s daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in pink color. The base of the triangle generally acts as a good support level.
Daily Chart – KBH
#2 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30.
This indicates bullishness.
#4 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#5 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color).
This is a possible bullish setup.
#6 Downtrend Broken: The weekly chart shows that the stock’s short-term downtrend has been broken. The downtrend line is shown in pink color in the weekly chart below. The stock then seems to be poised for a possible upmove.
Weekly Chart – KBH
#7 Bullish MACD: The MACD line (blue color) is above the signal line (orange color) in the weekly chart as well.
#8 Bullish Stoch: The stochastic shows that the %K line is above the %D line. This is a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of KBH at the current price of $23.80 and the rest if the stock corrects to the breakout level of the ascending triangle pattern at around $22.
TP: Our target prices are $28 and $34 in the next 3-6 months.
SL: To limit risk, place a stop loss at $20.40 (for entry near $22) and $21.10 (for entry near $23.80). Note that this stop loss is on a closing basis.
Our target potential upside is nearly 18% to 55% in the next 3 to 6 months.
- Entry at $22: For a risk of $1.60, our first target reward is $6.00 and the second target reward is $12.00. This is a 1:4 and 1:8 risk-reward trade.
- Entry at $23.80: For a risk of $2.70, our first target reward is $4.20 and the second target reward is $10.20. This is a 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 8x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any new government rules or regulatory changes in its sector.
Happy Trading!
Tara
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