Credit: Shutterstock photoWhat's Happening
On April 17, the National Association of Home Builders will release its housing market index reading for April. The index has been on the rise, but with interest rates moving higher investors will pay close attention to the current index reading to gauge whether home builders expect a material impact on the sector by the Fed's recent rate hikes. TOL is near its 52-week high, and the stock is up 16.8% on the year.
Technical Analysis
TOL was recently trading at $36.17, just $0.70 below its 12-month high and $11.29 above its 12-month low. Overall technical indicators for TOL are bullish and the stock has been in a strong upward trend. The stock has recent support above $35.00 and is trading above recent resistance. Of the nine analysts who cover the stock, six rate it a "strong buy", and three rate it a "hold". The stock receives S&P Capital IQ's 4 STARS "Buy" ranking.
Analyst's Thoughts
With the Federal Reserve lifting interest rates twice since December, a lot of investors are concerned regarding the impact of higher rates on the housing market. Near zero interest rates helped the market enjoy a very strong recovery after the financial crisis, and so far there is no reason to believe the last couple of rate hikes is having a negative impact on the sector. Even with the last two rate hikes, interest rates remain very low on an historic basis, and I would expect to see another strong housing market index reading. The housing index not only paints the picture of the housing market, but of the overall economic landscape, since home buying picks up as the overall economy strengthens. Expect a decent reading, and homebuilders like Toll Brothers to move higher on the news.
Stock Only Trade
If you're looking to establish a long stock position in TOL, consider buying the stock under $36.50. Sell if it falls below $32.75 or take profits if it gets to $42.00.Bullish Trade
If you want a bullish hedged trade on the stock, consider a June 29/34 bull-put credit spread for a 40-cent credit. That's a potential 8.7% return (48.1% annualized*) and the stock would have to fall 6.0% to cause a problem.
Bearish Trade
If you want to take a bearish stance on the stock at this time, consider a June 39/43 bear-call credit spread for a 40-cent credit. That's a potential 11.1% return (61.4% annualized*) and the stock would have to rise 7.7% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a June $36.00 covered call. Buy TOL shares (typically 100 shares, scale as appropriate), while selling the June $36.00 call for a debit of $34.65 per share. The trade has a target assigned return of 3.8%, and a target annualized return of 21.4% (for comparison purposes only).The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
