One of the leading installer and distributor of insulation and building material products, TopBuild Corp (NYSE: BLD) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Double Bottom Breakout: As seen from the daily chart, the stock had recently broken out of a double bottom pattern (marked in orange color). Once the stock breaks out of a bullish pattern like the double bottom pattern, it typically moves higher.
Daily Chart – BLD
#2 Price above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, indicating that the bulls are presently in control.
[hana-code-insert name=’adsense-article’ /]#3 MACD Above Signal Line: The MACD line is currently above the signal line in the daily chart. This is a possible bullish sign.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart. This indicates bullishness.
#5 Strong Stoch: The stochastic is currently moving up and the %K line is currently above the %D line. This usually indicates bullishness.
#6 Unbroken Uptrend: The weekly chart shows that the stock’s uptrend is unbroken, as it has been forming higher highs and higher lows since the past several months. This uptrend line is marked in purple color in the weekly chart below.
Weekly Chart – BLD
#7 Bullish Stoch: The %K line is currently above the %D line of the stochastic. This usually indicates bullishness.
#8 Bullish MACD: The MACD line is above the signal line in the weekly chart as well, indicating a possible bullish bias.
#9 Bullish RSI: The RSI is above 50 and moving up, indicating possible bullishness.
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 BLD if it crosses above $65.20. The rest of the shares can be purchased if the stock corrects to the breakout level of the double bottom pattern at around $55.
TP: Our target prices are $65 and $80 (for entry near $55) and $75 and $90 (for entry near $65.20) in the next 4-6 months.
SL: To limit risk, place a stop loss below $53.30 (for entry near $55) and $58.90 (for entry near $65.20). Note that the stop loss is on a closing basis.
Our target potential upside is 15% to 45% in the next 4-6 months.
- Entry near $55: For a risk of $1.70, our target rewards are $10.00 and $25.00. This is a nearly 1:6 and 1:15 risk-reward trade.
- Entry near $65.20: For a risk of $6.30, our target rewards are $9.80 and $24.80. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 14x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the double bottom pattern with 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.
Happy Trading!
Tara
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