Month: June 2005

Climax Run

Climax_run_ibd61705_3 Here’s a handy little article from Friday’s IBD.  It’s all useful, but the part I circled is particularly timely and relevant to my 6/18/05 posting on KB Homes (NYSE: KBH) and some other stocks in its group. Download Climax_Run_IBD-6-17-05.jpg or click the image for a pop-up window.

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Looks Like Textbook Climax Top and Reversal

Kbh_61705

Just a quick post to point out near perfect setup that appears to have materialized on Friday: (1) the run 30% run KB Homes (NYSE: KBH) and dozens of other housing stocks have gone on in less than a month, (2) today’s $10 point upside gap, (3) the big time reversal and close near bottom of the day’s range, (4) the massive volume (close to record levels for KBH and certainly the highest volume of the run).  What it looks like we have here is a textbook climax run and reversal after a multi-year rally and month-long acceleration on a shorted stock (7.9% of shares sold short) that people have been top-picking for years. This looked so good to me that yesterday I put on a $38,000 position in the stock with five July $75 put options.  I would have done a spread trade (i.e., buy $70 or $75 puts and sell $60 or $65 puts) to increase leverage and offset the decay on my long options with decay on my short options, but my current broker doesn’t offer spread trading and I’ve not opened an OptionsXpress account yet.  I’ll look to close these options in the next week probably, depending on what materializes.  Anyway, this will be an interesting one.  Cheers!

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Housing Bubble Chatter = Contrary Indicator… Not!

Here’s my brief intro, then click the continuation link to read this week’s cover article from The Economist magazine:

The number of "housing bubble" articles has accelerated significantly recently, with daily articles in papers around the country, front pages, above the fold, magazine covers, web searches, chatter at the office, in the streets, from the shoe shine boy.  Normally you would think to yourself, "contrary indicator," and normally you would be right.  But this is not "normally" and you have to remember that a little bit of information, such as a beginning understanding of the term “contrary indicator,” is a dangerous thing.  This "housing bubble" chatter is actually a sign of the froth that has built over the past number of years, the froth that allowed me to cash out my condo for 6-times what I paid for it, the froth that has my dental hygienist buying a condo in downtown DC with payments so high she has to work two jobs, the same froth that has people camping out for days in Northern Va. to be first in line to buy a piece of shit tract home so they can flip it before it’s even built…  Do you still care to argue that all this "housing bubble" talk is a contrary indicator?  Note: Yesterday many home builder stocks broke out of bases and hit new highs, squeezing a lot of shorts.  If a real short squeeze develops we could see a good opportunity to take out some distressed shorts, but only if the correct climax and reversal signals emerge or the breakouts quickly fail.  Cheers!

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