Wednesday, April 15, 2009

Home Builders Declare Bottom?

Listening to the radio on the way home tonight, I heard there was some great news from home builders coming up. Waiting through the commercial break, I was dying to hear what the good news could possibly be. Another merger? New data? A bailout?

Then, after the break the reporter said that the home builders think this is a bottom because... They are seeing more traffic of viewers coming to see their model homes. They admit they are not signing any contracts, but they are getting more traffic. Wow! Great news! Lots of people looking at the houses they will be buying in 6 months at an additional 25% discount from current prices!

That is the world we live in. No matter how bad real estate is, any news can be spun as positive news. Its the trend of the market and the best thing to do is to play along with the game, but be prepared when it all collapses.

I was fortunate yesterday to get into SPG puts and sold at the end of the day. Today SPG spiked based on no news at all other than there may be some REIT takeovers. So I bought puts in SPG right at the close. If that is how they want to play the game, suit me up because I want in.

Banks are the same way. You have to be nimble and make quick moves. BAC options were very good to me and while I did not time my exit perfectly, I made out very well. Still holding the May options all on house money.

Tomorrow it is all about JPM earnings. If they knock it out, we gap up then fade back. If they miss, banks may have a rough day. Too risky to play either side other than a straddle or butterfly.

The VIX is at its lowest levels since September and showing no signs of reversing. I can't recommend making a big short position until it crosses the 20 dma. It has been below the 20 dma for 25 of the last 26 trading days. The last time it did this was from Dec 3rd to Jan 9th. I can't see we will see a reversal like we did in Jan and Feb but the VIX is not likely to keep up this trend much longer. The 20 dma is now a little over 41, its lowest level since September.

So, JPM will have a big say so on where the market goes from here. If they blow out, the market will go up but I don't believe it will go up much higher from here. Maybe 870. If JPM misses, we will see 815. I have to believe JPM has good earnings based on new accounting rules so you have to lean to the long side.

I am actually going to likely watch tomorrow. I got into EEM, GLL and also more TBT today. All pretty safe bets with little downside risk. Depending on what happens with the market tomorrow, I may play options on GOOG. It will be a pure gamble with earnings being reported the day before OPEX. Better than Vegas baby.


  1. Hi Beamer Dog,

    Did you mean to say you wouldn't yet go long the VIX, but you do expect it to rise soon?

    Sorry if I misunderstood, and you really meant to say you wouldn't yet short the VIX.

    Can you say a little more to clarify? My impression is that you think the VIX will soon rise (and the market will soon fall), but I'm not sure what you mean.


  2. I re-read your post and thought about it some more. Do you mean you wouldn't yet take a big short position on other stocks & ETFs (not a short on the VIX itself)?

  3. I am not taking any position on VIX. I am saying the VIX will eventually rebound and cross the 20 dma which may be an indicator of the next leg down. And I don't think it is a good idea to short the market until the VIX shows some positive moves that cross the 20 dma