Toll Brothers Stock Will Fall Much More, This Chart Shows

While the rich and uber-rich Americans who inhabit the East and West Coasts continue to live in a reality that most of us only experience in movies, the games that allowed most Americans to become overburdened with debt are coming back for another bite. The latest echo of the pre-2007 housing crisis is the 3% down payment mortgage that Wells Fargo (WFC) - Get Report  launched this week. With housing prices high and family balance sheets on thin ice, the only way the country's largest lender can stimulate business is to require less cash. 

The smart money, however, appears to be wise to this obfuscation of the real economy, one that finds America in month 83 of the "recovery" with 45 million people on food stamps and the median family income still 5% below that of 2007. This chart of Toll Brothers (TOL) - Get Report shows that the peak of the post-2008 crash arrived in August of last year, and the 42% slide since that echo-high is likely not over.

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Notice that this leading builder of luxury homes peaked way back in 2005, well before the debt bubble burst in 2007, and was putting in lower echo-highs, labeled blue (B) and red B, when the economy and stock market derailed. Now, most of an impulsive decline from the $42 level is visible, with only a slide into the light green box awaiting, as the blue arrow illustrates. Once this is complete (labeled as purple A), another multimonth rise should allow the stock to see the current $30 level again. But then wave purple C of C-circled of II-circled will complete the entire correction from the 2005 peak.

Unfortunately, the economic circumstances that will accompany Toll Brothers' trip toward the $14 zone (where Fibonacci symmetry will be satisfied) will coincide with extreme stress for most other stock sectors. Therefore, now is the time to not only put sell stops at $26 in this name, but also prepare to exit most other stocks, too, as this harbinger of intermediate-term outcomes is pointing toward trouble for the next 18 to 36 months. 

Wells Fargo is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells WFC? Learn more now.

Members of our DSE Alerts service have just been alerted to the risk in holding this name in their portfolios. If you're not currently long, use $31 +/-$1 to establish short exposure, as the daily stochastics (not shown here) have peaked and crossed down. This is a near-term sell signal. Is the bell tolling for your Toll Brothers  holdings? Don't wait too much longer to find out. Exit using the parameters above and watch from the safety of the sidelines.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.