Wednesday, August 6, 2008

Bookkeeping: Closing DR Horton (DHI)

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I bought 2 homebuilders in late winter for a specific reason that is not panning out at this time. In the previous 4 bounces post major correction (Aug 07, Nov 07, Jan 08, Mar 08) investors flocked into these stocks since the thesis was the economy "will rebound in 6 months". Even though I believed this (correctly) to be false that doesn't mean stocks in these 'early cycle' areas which are driven by short covering or rotation cannot rally significantly. So these were bought specifically for times like the last month - so I'd have something rallying when the market turned 180 degrees away from the "growth" stocks. Unfortunately, this time around the same suckers... err shrewd investors (and their computers).... who bought these stocks the last 4 iterations are not piling back in. Maybe it is finally hitting them in their noggin that there is no housing recovery coming. Now the current sexy theory is the consumer will be back (ex his house ATM of course) and the anti oil plays are the place to be - so one needs a car company (because people won't be buying homes but they'll be piling into car lots) or a retailer or an airline or any sort of road kill that will go from losing a lot of money to "less than a lot" of money and hence is a "great buy".

Whatever the reasoning - the housing stocks are not performing as they should be. They had a purpose in the portfolio - to run counter cyclical to the global growth story and to bounce when the others are being sold off. They are not doing the job. So I'm going to cut one of the two here, DR Horton (DHI) in the $11.10s with a $4000 loss. All that matters in this day and age is the chart and the chart shows a stock unable to rebound above the 50 day moving average even as oil drops and institutional money floods into to "consumer" plays (it's all sort of laughable - the same toxic junk a month ago is now the safe haven). If these stocks cannot rally in what I consider a beneficial environment for them it makes me scratch my head, when exactly they would rally.

Not that it matters but there was an earnings report earlier this week - I don't bother to read these anymore because earnings reports are now irrelevent to stock prices. All that matters is the sector allocation and charts. This is the best stock on the planet over $14. It's a piece of junk under $12. The new era.

No position


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