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

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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