(This is an excerpt from an article I originally published on Seeking Alpha on March 16, 2014. Click here to read the entire piece.)
{snip} Now that I think the stock market has put in a top for the time-being, I have to make another one of those major readjustments in my thinking on home builders (subject to validation of course).
I am essentially going back to range-bound thinking. I have no particular downside target although the chart below gives some potential buy points for ITB. I am focused on buy points rather than points for shorting because I think longer-term risk/reward still favors housing for all of the bullish reasons I have spent the past few years writing about. In particular, if/when the economic recovery enters a stronger and healthier mode, housing should soar. Moreover, I want to bet on housing as the potential nexus of pent-up demand for household formation and incipient inflationary forces in the economy sometime in the future.
Source: FreeStockCharts.com
From a fundamental standpoint for individual home builders, I am looking to book values as a potential guide for picking and choosing buy spots among home builders that manage to maintain relatively healthy margins. {snip}
As I have written earlier, seeing ITB fail to respond to the good news in new home sales and residential construction raised my first yellow flag. The final straw was seeing ITB respond instead in the previous week to a barrage of analyst downgrades. {snip}
{snip}
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on March 16, 2014. Click here to read the entire piece.)
Full disclosure: long shares in MDC and TPH; long call options in ITB, MTH, and TOL