Here’s how I’m trading Toll Brothers ($TOL) (September 21st, 2020)
I want to look at Toll Brothers ( NYSE: TOL ) here today. The XHB ( NYSEARCA: XHB ), Homebuilders, have been holding up pretty well; above the 50-day moving average and they continue to do so. We get a gap down today like basically the rest of the market except the Inverse ETFs. Then this traded lower but held above the 50. I was looking at most of the components in the XHB ( NYSEARCA: XHB ) and they are all kind of doing the same thing.
I am looking at Toll ( NYSE: TOL ) and this had a really strong day, there was really no back down here today. The stock opens up, runs up, comes to a higher low than it was here, and then just runs up the rest of the day, even into the close. Typically, the opens are actually controlled by retail traders. Retail traders, these are the low-dollar guys, if they are rushing in to buy something it will drive the price up and the larger traders will be happy to supply all of the demand but just at a higher price; and vice versa on the sell side.
But into the close, that’s when you see what the institutions are really doing. The larger traders, you can see what they are doing because they are essentially cleaning up orders. Like, let’s say somebody is buying this stock kind of all of the way up here and then the stock drifts sideways. As you get into the close they say, “All right, we have got a little more shares to buy. Our average cost basis is clear down here, let’s just go ahead and fill the rest of that order,” and it pushes the price up. That is really something that you can see if you understand how the market works.
I am looking at this as a stock that is most likely going higher from here. So I think you can buy this stock here but you have got to give the bears their due. I wouldn’t take more than 8 percent risk on this. Frankly, I would probably keep your stop, just as a function of mathematics as opposed to the actual chart, I would keep the stop probably a little bit below 45.00; just because these days, especially in a market like this, I really don’t want to risk certainly more than 5 percent on a trade and ideally even less than that.
So because the market is the way it is, it’s a little dicey right now, and so I would just suggest playing it really close to the vest. Don’t be trading big and require, demand, that your trades are profitable right away. If they are not profitable right away then you are wrong about the trade, that’s irrefutable evidence. If you thought the stock was going to go down you wouldn’t have bought it, so you are wrong. Sorry, that’s the fact Jack.
So just require your trades to be profitable and just remember to, that cash is a position. If you don’t own any stocks don’t be sitting there feeling like a dope, like, I don’t own anything. Yes, you do. You have got a really big position and it’s working. When the S&P is moving lower your cash is is totally outperforming the market, don’t ever forget that.
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