This Stock Just Broke Out with High Volume

KB Home (NYSE: KBH) has broken out and looks poised for an upcoming price surge according to its latest charts. KB Home operates as a homebuilding company in the United States. It operates through four segments: West Coast, Southwest, Central, and Southeast. It builds and sells various homes, including attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, second move-up, and active adult homebuyers. The company also offers financial services, such as insurance products and title services.

Bullish Indications

#1 Consolidation Area Breakout: The daily chart shows that the stock was trading within a consolidation area for the past several days. This is marked in the daily chart as a pink color rectangle. Currently, the stock has broken out of this consolidation area with high volume. Once a stock breaks out from a consolidation area, it usually moves higher.

KBH – Daily Chart

#2 Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA and had moved higher with high volume. This indicates an overall bullishness of the stock.

#3 Bullish ADX and DI: The ADX indicator shows bullishness because the +DI line is above the -DI line and the ADX line is currently moving higher from below the +DI and -DI lines.

#4 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color). This indicates a possible bullish bias.

#5 Flag Pattern Breakout: As seen from the weekly chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range. This is a classic flag pattern and is marked in the chart in purple color. A flag is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case). Currently, the stock has broken out of the flag pattern. The stock is also trading above its 50-week and 200-week SMA. All these are possible bullish signs.

KBH – Weekly Chart

#6 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the weekly chart. This indicates possible bullishness.

Recommended Trade (based on the charts)

Buy Price: If you want to get in on this trade, the ideal buy level for KBH is above the price of around $50.00.

TP: Our target prices are $55 and $60 in the next 1-5 months.

SL: To limit risk, place a stop loss below $47. Note that this stop loss is on a closing basis.

Our target potential upside is almost 10% to 20% in the next 1-5 months.

For a risk of $3.00, our target rewards are $5.00 and $10.00. This is almost 1:2 and 1:3 risk-reward trade.

In other words, this trade offers nearly 2x to 3x more potential upside than downside.

Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the flag pattern breakout level. 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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