|PHM Weekly Chart|
The interesting pattern throughout Wave-2, however, is a descending triangle. The number of touches on the top resistance line are significant, with six touches completing as of two weeks ago. The support line is much weaker, although it, too, is well defined. It's important to note that descending triangles break to the downside over 70% of the time, however a downside break in this case would be inconsistent with the Elliott Wave structure. We'll have to watch that, since it may force us to reconsider our wave count.
I've also shown a diagonal support line coming out of the last Wave-A bottom. Whether or not that support has teeth remains to be seen, but I show it just in case. Notice, too, that OBV remains flat, although there have been signs of strong demand entering the scene in recent weeks.
|PHM Daily Chart|
We're seeing strength in the RSI(9) oscillator, especially as compared to the last major high on the chart. The overall RSI has flashed a bullish divergence at least since the beginning of December. The same is true for the OBV which shows an extremely strong rise coinciding with the flag pole development. The demand signature for those five days is especially strong.
In fact, the only cautionary tale on the chart thus far is the bearish crossover in the MACD(5,34,5) indicator. Watching the pattern, however, it's easy to predict that a breakout of the flag will coincide with a bullish crossover, and that's a signal for which we'll be watching.
Trading this stock is relatively straightforward. It's a classic bull flag trade, so we'll go long on a breakout of the flag. Our protective stop will be just below the flag, and our target is $23.32. If we see a bullish crossover of the MACD prior to breakout, we'll take that signal and enter long at that point. You can see on the chart that it's been a reliable signal for this stock, so it'll be worth the risk to play the potentially early entry.
The next earnings date isn't until April, and the next ex-dividend date is expected to be in March, so there's nothing artificial in the way of a trade. We'll play this one as it develops.