Holding stocks through earnings announcements isn’t something I usually do. I missed seeing TOL on the earnings list for this morning, and was still short the stock. I lost a quick 1R, but made up for that and much more shorting Homebuilder stocks, as they dropped lower in red flames today. Here’s trades in TOL, RYL, and MTH. RYL had two excellent examples of trading patterns, I’ll be adding to that page.
First, the stop in Toll Brothers Inc. hit. Next, trading on the 5-minute chart retraced the wide range red bar by about 50%. A short sell signal triggers with a lower low. A stop is placed above the day high, or the prior bar, based on risk tolerance. I tend to go conservative, placing it at the high. You then have another short sell signal under the 30-minute low. Set targets, and manage the trade with pivot stops. Nice outside day for the shorts.
The stock of Ryland Group Inc. has some great short signals here. The daily chart confirms a downtrend with first a lower high pivot, followed by the base (support) breakdown. You have extra icing on this piece of cake, as the stock has just slipped under the 50 day moving average at the start of the move. Look to short the stock.
The 5-minute charts sets up trading pattern #2. Like TOL, the stock is sold short under the 4th candlestick, and a stop placed above the high. You’re risking about .20 – .30 for R here. Your biggest enemy is having to chase the stock short, because getting upticks on 3-letter stocks is not easy sometimes. Manage with pivot stops, and cover in partials. This trade has a potential 10+ R return. I’d call that a good reward/risk ratio!
Meritage Homes Corp. is essentally traded the same way as TOL and RYL.
Those are some nasty wide range bars for these homebuilder stocks. Stay on the short side.
