Articles from Aug 2006

Barry Ritholtz is predicting a bounce in home builders

BTW, I wouldn't be surprised to see a bounce in the homebuilders.

There has been so much written about them, down 50% from their peak. TOL for example returned back to its 2004 break out level, and its 200 day moving average . . .

Thats for nimble traders only . . .

Posted by: Barry Ritholtz | Aug 31, 2006 11:55:46 AM

Note: It is in the comments to the main post.

Homebuilders call reader reaction

Here are two emails which just landed in my email!!!

  1. Just want to thank you for your home builders call a week ago. I am up 35% on your CHCI pick and closing the position today. Not bad for a weeks worth of effort. Again thanks for the call.
  2. First of all thanks for the CHCI headsup. Really appreciate the fact that you have been naming your personal buy stocks lately on the blog. It helps BIG time, and would strongly urge you to carry on that practice.

The Originl Home Builders call which set off the storm

The overcrowded short trade in the housing stocks<

When everybody gets it, best part of the move may be over. What do you see day after day, a negative story on housing. Today all the leading newspapers have negative stories about housing on front page. Expect a magazine cover this weekend or next on housing crash.
So time to cover your housing stock short. It might be time to buy housing stocks if you are value investor. I am buying CHCI,Comstock Homebuilding Comp

Housing Stocks
AVTR,Avatar Holdings Inc
AXR,Amrep Corp
BHS,Brookfield Homes
BZH,Beazer Homes Usa
CHCI,Comstock Homebuilding Comp
CTX,Centex Corp
DHI,D.R. Horton Inc
DHOM,Dominion Homes Inc
HOV,Hovnanian Enterprises A
ITB,iShares Dow Jones US Home Construction Index Fund ETF
KBH,Kb Home
LEN,Lennar Corp Cl A
LEN.B,Lennar Corp Cl B
LR,Lafarge Sa Adr
MDC,M.D.C Holdings Inc
MG631,Residential Construction
MHO,M/i Homes Inc
MTH,Meritage Homes Corp
NVR,Nvr Inc
OHB,Orleans Homebuilders Inc
PHM,Pulte Homes Inc
RYL,Ryland Group Inc. The
SPF,Standard Pacific Corp
TARR,Tarragon Corp
TOA,Technical Olympic Usa Inc
TOL,Toll Brothers Inc
WCI,Wci Communities
WLT,Walter Industries Inc

Earnings Trend

Keep a close eye on earnings. Best place to find unbiased information about earnings is Zacks. Post holidays the market attention will turn to earnings. Some of the stocks will start breaking out in anticipation of earnings. Also keep an aye on sectors showing good earning momentum.

Positive surprises have outnumbered disappointments by almost 4:1.
With almost 94% of S&P 500 companies reported, the summer earnings season is all but complete and the results have been surprisingly positive. The median second quarter reported growth rate is an impressive 13.2% and positive surprises have outnumbered disappointments by almost 4:1.

The top-performing sector for the second quarter was Energy, with a median year-over-year EPS gain of over 65%. From here however, growth in the sector is expected to slow, with analysts expecting median earnings growth for all of 2006 to be just over 30%. Much tougher comparisons due to the anniversary of last years storms are the cause of the growth slowdown. Looking into 2007, analysts are expecting median growth for the sector’s companies of 16.2%. No tree grows to the sky, but this is still very impressive given the gains of the last few years in the sector. This would push Energy just under the Tech sector, where analysts are expecting an ambitious 18% median growth rate for 2007.

The Industrials, Telecom and Materials sectors also performed well in the quarter, with 19%, 17%, and 15% median earnings growth, respectively. For the Material, metals producers like Alcoa (AA) and Nucor (NUE) lead the charge, with EPS growth rates of 87% and 43% respectively. Growth in this sector, unlike in Energy, is expected to hold strong for the remainder of the year. For 2007 however, analysts are expecting a slight cool down, with median EPS growth for the sector’s companies expected to be just under 13%.

Momentum Flip

I have talked about the daily scan of stocks making 50% or more move in a month many times and how it tells you a lot about market. If you have been tracking the scan daily you would have noticed that for many weeks, most of the stocks appearing on this list have started their move from bottom of range or weakness. Buying breakout from weakness has worked. While in a roaring bull environment you will notice most of the stocks on the scan are at top of their range or making climax moves after long run ups.
You need a dynamic and simple indicator which alerts you to such market possibilities. This is one indicator which tells you a lot about market and if you study it over many years you will get very good read on market. Plus it reminds you everyday that there are opportunities for long side profit in most market environment.

Stocks up 50% or more in a month

AEHR,Aehr Test Systems
POZN,Pozen Incorporated
SIGM,Sigma Designs Inc
SNTS,Santarus Inc
TAR,Telefonica De Argentina
WTHN,WiderThan Co Ltd

Wouldn't it be nice to know about these stocks before they make a 50% move. Here is a scan universe I use to find such candidates when they just start making the move using a momentum scan. The list below shows stock with high momentum for last one month. The list is generated using a simple rate of change scan. Next set of 50% movers should emerge from this set.

ACAD,Acadia Pharmaceuticals
ANAD,Anadigics Inc
BIVN,Bioenvision Inc
CBAK,China Bak Battery Inc
EPL,Energy Partners Ltd
FORD,Forward Industries Inc
GGR,Geoglobal Resources Inc
GKIS,Gold Kist Inc
ICOC,Ico Inc
IVII,Intervideo Inc
LYTS,Lsi Industries Inc
MCRS,Micros System Inc
OLAB,OraLabs Holding Corp
RACK,Rackable Systems Inc
RMBS,Rambus Inc
SIGM,Sigma Designs Inc
SMP,Standard Motor Prods
SMSI,Smith Micro Software Inc
SNCR,Synchronoss Technologies Inc
SNTS,Santarus Inc
TAR,Telefonica De Argentina
VOLC,Volcano Corp
VPHM,Viropharma Inc
WTHN,WiderThan Co Ltd

See some of my old posts to understand how and why this works.

Hot new trend

Grandma would never approve of something like this!

When we first heard about meal assembly kitchens -- where customers spend a couple of hours putting together a week or a month of dinners they can cook at home -- we thought the idea was ingenious. As we were reporting on the trend more than a year ago, half a dozen meal assembly places were set to open in the Washington area, all of them franchises of national chains such as Dream Dinners, Let's Dish!, Dinner My Way and My Girlfriend's Kitchen. Since then, the numbers have exploded.
The drill at the places is basically the same. You don plastic gloves and maybe a head covering and put together the ingredients for up to a dozen or so different meals. Think of it as a do-it-yourself meal kit, a cake mix writ large. Then you take the individually packed fixings home to your own freezer to be cooked as needed. Instructions are foolproof, meals are easily customized and the atmosphere's friendly.

Roberto's Nasdaq Trader has joined the debate on the use of contrarian indicator 'The Big Picture'.Here is my response which I posted to that long bearish piece.

Count the number of negative posts on housing on most popular blogs in last 40 days. Look at comments by people who frequent it. Uniformly bearish on housing. Look at price action on housing stock.
Does it matter whether that person made a contrarian call a year ago or two year ago? We are talking abut current scenario.
Popular contrarian’s worst fear should be when that person becomes a contrary indicator because followers blindly start believing in everything blindly and media starts lapping up every word.

The crystal ball is predicting a down move today. I will have a more detailed post sometime today about questions on the Index Direction System. In the meanwhile you can see my earlier post on this- The secret behind the system
As always remember the system can be horribly wrong sometime. Current trading environment is light volume and moves are more volatile.

George Soros - The Age of Fallibility

Betting against Big Picture Part 3

The ongoing discussion on contrary thinking continues. There is a fairly long post on The Big Picture about it. Plus there are comments left by Barry on this blog. Thrust of the argument is that others do not understand contrary thinking!!!

There are all too many pseudo-contrarians who do not understand how (and when) these sentiment indicators work; I saw one that claimed the Housing posts on this blog were a buy signal for the Homebuilders.

Now readers of this blog can go back and see the series of posts on The Big Picture during the period I mentioned and come to their own conclusion.

More than that if you want to learn something about real contrarian trading see the Reuters screen I have mentioned here couple of times. That screen buys weakness, many times 52 week low and is the best performing screen amongst all Reuters screen. You can backtest it and see for yourself.

If you apply a little bit of independent thinking you will also understand why it works.

April 21, 2006 Post
The Reuters stock screener is an excellent free tool. More than that you can get many good ideas from their standard screens. Look at the performance of their screens:

Indexed vs S&p vs NASDAQ
All Reuters Select Screens 312.12 +217.34 +252.94
Growth Screens 268.26 +173.48 +209.08
Accelerating EPS Growth 213.38 +118.61 +154.21
Relative Growth 453.33 +358.56 +394.15
Relative Momentum 163.80 +69.03 +104.62
Rising Expectations 174.45 +79.68 +115.28
Sales Growth Leaders 481.20 +386.43 +422.03
Value Screens 391.59 +296.82 +332.42
Contrarian Opportunities 1,489.57+1394.80+1430.40
Favored Value Plays 483.66 +388.89 +424.48
Income Stocks 227.81 +133.04 +168.64
Growth At A Reasonable Price 280.77 +186.00 +221.60
Relative Value 440.17 +345.40 +380.99
Quality Screens 285.14 +190.37 +225.96
Fastest Turnover 302.15 +207.38 +242.98
Industry Leaders 260.18 +165.41 +201.01
Return On Investment 197.46 +102.69 +138.29
Strong Operating Margins 394.46 +299.69 +335.28
Sentiment Screens 309.65 +214.88 +250.48

There are many ideas to work with in them. All of them beat the indexes handsomely, are mechanical and free to use. There is extensive detail on the methodology and philosophy behind each screen. Registration is required to access them. A good assignment for weekend.

What stocks does the Contrarian screen show today
Now that screen outperforms S&P by +1097.97 and Nasdaq100 +1139.85. That is real contrarian system.

More people recommend buying home builders