Housing Stocks Flying

I mentioned Saturday: "Ironically some of the weakest areas such as retail and homebuilders are showing signs of being washed out and potentially good for at least a very near term trade (up) as most of the bad news seems 'priced in' (for now)."

Many names are up 5-10% today after serious moves yesterday. Ah, reminds me of 2005 when this was such a nice sector.

While these names and that sort of short term time horizon is not appropriate for this type of fund which has a longer term horizon, they are providing a nice dead cat bounce. In the end, all it will do is provide a new spot to short them from a higher level, but if you are an avid trader it's a nice short term call.

Eventually these will be good buys for a longer term trend such as this fund is set up to do; but I think we will be talking next summer or fall for 'that' move. But until then they should provide some nice dead cat bounces as discussed this weekend; they have been so washed out that all the sellers are pretty much eliminated and short sellers will want to cover. The 'tell' from this was the KB Homes (KBH) report last week - terrible news but the stock traded up. This shows 'it's all priced in' (for now). Look for these stocks to potentially rally up to their 50 day moving average where re-shorting will happen at institutions in my opinion. There is still a long slog ahead for this sector.

On the flipside, I still think the restaurant stocks are the new housing - the new place to short. A cash strapped consumer combined with spiking food costs are going to kill margins and this is not a 1 quarter issue. Unfortunately I cannot find any index ETF that bets against restaurants so I cannot play this trend in the fund, but I think this group is in serious trouble. I mentioned this thesis back in mid September and as each day passes that every agricultural commodity ramps up, the profit margins in this group continue to get squeezed. Most restaurants chains are US based so don't have international exposure to offset the weakening domestic consumer with his Chinese or Indian cousin. Another nail in their coffin.