Are you seeing this pattern in LGI Homes (LGIH)? It’ll make you money! (November 25, 2015)

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LGI Homes ( NASDAQ:LGIH ), a fairly thinly traded stock. This has been setting up to be a real beautiful breakout here. This is really starting to look like, essentially, this little square here, higher lows along the 50-day moving average, lower highs. The volume is still just a little bit below average. But, that average has been from all of this big chop, all of this distribution, big, big distribution days here, and the sock has still held up pretty well above the 50-day moving average.

So here’s my suggestion: first of all your line in the sand, the stock really has to stay above the 50-day moving average, otherwise I would have to look at this stock and kind of reassess my technical take on it. So the stock has to stay above the 50-day moving average. Then, we need to see volume start to pick up. Guess what? You’re not going to see that on Friday, you just won’t. Probably next week. But you can buy some stock right here, 32.90, 32.00 would be even better, 31.00 better yet. But then you don’t want to buy more until the stock breaks out to a new high. So you’re kind of taking a little bit here, you’re “nibbling”, waiting.

If the stock starts rolling over you go like, “Oh crap! I thought the fundamentals were good,” which they are. It’s an IBD 50 stock so there’s a combination of fundamentals and technicals that the algorithms like. So it’s got that going for it, which is always nice. But what you’re doing is, you’re taking a little bit of stock while it COULD still go in the opposite direction, so you’re lowering you risk by just taking a little bit. And then when the stock breaks out, you’ve already got some so you’ve got a bit of a profit going. Then you can take some more stock, you can get a full position a little bit above 34.00, and you feel good about that. You feel confident because you have that little profit.

So anyway, that’s how I would trade LGI ( NASDAQ:LGIH ). I think this stock works. I think it’s a good company and I love the way this volume is picking up. This is what you want to see. Since this stock broke out look at the change in volume characteristics here. So this is a stock that’s getting more sponsorship, it’s getting a lot more traders and investors coming to it. I think, frankly, you’re probably getting this stock ultimately at a very low price.