Last year, we pointed out that PHM was an almost textbook example of a stock that had a significant breakout after a number of years trading in a bounded trading range. One of the most dependable charts in which to trade are those which exhibit such behavior. When all the trading statistics line up on your side, including in this case, the rising SCTR rating, an RSI that bounces off the 50 area, combined with a positive move in the trend oscillator and new highs in the point and figure charts, the probabilities are stacked in our favor. From the weekly chart at the time, prices were just moving away from the coiled moving averages, also creating a lower risk entry (indicated by the first pink ellipse on the chart below)
(charts by stockcharts.com)
Our initial projection of $35 was reached and so tactically after a 50% rise, we can elect to exit, or trail a stop below the last low at the 32 area. Why would we choose to do so since the weekly trend looks so strong? Quite simply, risk and reward. As we note, price is substantially above the 20, 50 and 200 day averages, each of which defines a certain level of risk. We note that the seasonal statistic shows that PHM has historically been very strong in the month of February over the past 4 years, closing higher at month’s end than it was at the beginning of the month. This tempers our trigger to sell somewhat, but we feel that the majority of the recent swing is now behind us.