Don't Ignore This Chart!

This Homebuilder Is Testing Major Gap Support

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One of my favorite trades is looking for a bounce off of gap support.  Many times, the top of gap support will provide great support and the stock will never "fill" the entire gap back to the prior close.  PulteGroup (PHM) lost the top of its gap support at 21.03 at Friday's close for the first time and now appears set to completely fill its gap back to 20.42.  There's also price support close to 20.50 that should encourage buyers to emerge.  Take a look:

Since that gap higher and follow through buying in mid-July, PHM has been consolidating and that's allowed its MACD to approach centerline support and also has allowed its RSI to drop back into the 40s.  Check out how the PHM stock price has bounced off recent tests of RSI 40 support.  A gap fill and test of price support down near 20.50 would provide an excellent reward to risk long entry in my opinion.

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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