Bearish on Toll Brothers: expects a further decline toward $115 or lower by the January 15 options expiry, citing high rates, a hawkish Fed, potential yield-curve inversion, poor housing affordability and buyers on strike; a break below $130 would trigger a sharp drop.

It's Toll Brothers . How do you view the housing sector and construction companies at the moment? The situation is neither comfortable nor promising. There is no doubt about this.

It is simply not a comfortable situation. I mean, obviously Toll Brothers doesn't offer housing for complete beginners, but you know, housing affordability is clearly a problem right now.

Interest rates are obviously higher. I think everyone is aware of that. We have a Federal Reserve that is taking a hawkish stance. The one thing that is not being taken into account, and I actually think we may see an inversion of the yield curve, which would of course indicate a recession, so to speak.

As you know, the factors surrounding interest rates are not pleasant when it comes to home builders. For this reason, look, there is no doubt that Toll Brothers is indeed experiencing some kind of decline here.

I would join this trend in this case. But I will give this deal the advantage of time. I will continue with the deal until the options expire on January 15. I do this because I believe the market will continue to deteriorate somewhat.

I think there will remain a hawkish stance from the Federal Reserve at least for the time being . But, surprisingly, I will build up a fairly large price differential , which requires a substantial move.

So, on the expiry date of the options on January 15, I will buy put options at 125. I repeat, buy put options at 125, and sell put options at 115 for it. This deal was made for a discount of $2.60.

So, it's an attempt for $260. You're risking a full $260 for what, basically? You are looking at a $10 price difference, but you need the underlying stock to reach $ 115 or lower at some point between now and the January expiry of the options.

Good. Currently, we are at 135.67. Of course, we have an upcoming earnings announcement event for Toll Brothers, and that's no secret. I mean, just by looking at yesterday's housing data, KG, we saw the extreme stagnation that is gripping this market.

What do you see in the technical analysis of "Toll Brothers"?

Yes, there are a few things. We are witnessing price consolidation at this time, and we are actually trying to take advantage of the 20-day moving average as a resistance zone.

We have already surpassed it, at least for today. Let 's see if this level will hold. We have a secondary trend or secondary trend line of peaks here, which also somewhat aligns with the volume control point, which is located at around $136 to $137.

Let's assume that. Now, here's the hard part. Looking back at last year, the stock did not trade below 130 for more than four consecutive trading sessions before it recovered. Therefore, Don is clearly taking a bold step here and believes the stock will continue to collapse.

He is looking to completely liquidate this stock. I go back and look at the daily chart and see that the 130 to 125 level was a buying zone that people usually enter. Now, if we look at the Relative Strength Index (RSI ), it doesn't really tell us much.

We know it makes higher or lower peaks, but it makes higher lows in the short term, and that's actually a good thing. The MACD indicator is in a bullish formation, still below the zero line, but the 12-period exponential moving average is above the 26-period exponential moving average.

This means that short-term price momentum is moving slightly higher. If we move to the weekly chart, it's not really good to look at. This stock has actually been trading in a consolidation range since November 2024.

Consequently, you are getting closer and closer to the lower end of that range, but the trading volume profile here essentially shows that the 136 level was the pivot point. Here we try to accommodate as many of the sellers present in the market as possible.

If we break down and reach around 127, we find that buyers have stepped in at that level. If we move upwards, you are looking at the 167 level . The Relative Strength Index (RSI) is recording lower highs, and this is slightly more prone to decline .

The MACD indicator is in a bearish pattern, the 12-period exponential moving average is below 26 and also below the zero line. This is also a bearish indicator . But again, the stock did not trade below 130 and remain below it for more than four sessions during the past year. This is the short- term trend we have seen.

Okay, Don. I want to give you a chance to respond here because "KG" is looking at different levels and does not expect, at least from a technical perspective, that we will fall below 130 . What do you say to that?

Yes, you know? I liked it. Kevin disagrees with me slightly here. So, in this particular case, I honestly look much less at some of the technical aspects. I'm looking, you know, outside the graph.

Look at some real estate statistics right now. As you know, looking back at previous data, we have never seen buyers on strike as we are seeing now in the real estate market. There is no doubt that the high interest rate environment, and the potential for an inverted yield curve, will be a difficult time for these home builders.

I actually agree about the 130 level. But I'm not just looking to break the 130 barrier, I'm waiting for this level to be the main catalyst that causes a sharp drop. And again , I like this.

However, the available data is not good. But that's why I trade based on economic fundamentals more than on technical analysis. The data isn't good, but I'm giving myself until the options expiry date on January 15th to see how things go .