GREAT SHORT IDEAS

I will short or consider shorting the following stocks today:

BZH looks like a good short because of the flag forming after the 50-day MA failure. The stock also broke its uptrend entirely. I expect the stock to retest the $3.50 level.

APP formed a really great pattern here. The stock is testing the 50-day again and it doesn't look like it will hold. Also notice the break in the uptrend. The stock finds support at $7.

NPSP was a stock that formed a new high, however, the stock formed a breakaway gap. This stock is toast and is a definite short for me.

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ARE HOMEBUILDERS HITTING BOTTOM?

I recently looked through charts for TOL, BZH, HOV, CTX, and LEN and realized that they ended stage 4, which is the mark down period. The next stage is the accumulation stage, starting back to stage 1. I suspect that the smart money is beginning to accumulate the homebuilders. Notice how most of them are near the levels they were before the housing boom? If I was running a conservative long-only mutual fund, I would start accumulating shares for the long-term over the next several months. Let me remind you, these homebuilders are not going to be shooting back up, but you'll see a gradual rise over the course of several years.

Centex Homes (CTX) - 10 year

Beazer Homes USA (BZH) - 10 year

Lennar (LEN) - 10 year

Hovnanian Enterprises (HOV) - 10 year

Toll Brothers (TOL) - 5 year

READER'S REQUEST - $HUI, SRS, BZH , XLV

As you can see, the $HUI (AMEX Gold Bugs) re-entered into its consolidation range after a sharp decline and spike up . I doubt that gold will shoot straight up a form a V-bottom. I think, in this case, it's going to hang out around the 310-360 area. On the next successful test of support, it's a buy. 310 is the absolute key support level. We're still waiting on the final outcome of the bailout package which can change my opinion entirely.

A lot of the homebuilders look like they may be heading up. Two things can happen here: 1) you'll see a nice large spike into that 80-95 range where it will consolidate, or 2) you'll see a nice big reversal confirming that the 3-day rally was a reactionary rally. I think there is still considerable downside, not to mention the numerous resistance levels including the 50-day and 200-day MA's. In my opinion, if you want to short the homebuilders, a highler probability short would be Beazer Homes USA (BZH). Watch for KB Homes' (KBH) earnings tomorrow.


The Health Care SPDR (XLV) is a tricky one to figure out. It is near a short-term bottom, but it must hold this level or it will no doubt go to $29. The good thing is that you really can't lose too much money trading the XLV. I would buy at a successful test at $30 but wait and see if it is confirmed the next day.

TODAY'S BREAKOUTS & BREAKDOWNS

We are truly living in interesting times. We are living in the days where financial history makes big history almost every day. Take today for example. The U.S. Dollar fell 2.6%, its largest loss in seven years. Oil spiked as high as $130 a barrel, settling at $120.92 up 15.7%. And then we have our crazy equity markets that seem to move 3-5% on a daily basis. I’m surprised the VIX closed up only 5.5% today and we’re still waiting for that $700 bailout plan. The SEC added 30 more stocks on its short list, expanding its market manipulative powers. The fact that Congress and the Treasury are fighting over whether or not homeowners deserve a bailout is outrageous. Get on with it, I say!

Now that I got my rant out of the way, the metals commodities such as gold and silver were up big today (I would suspect some hedge fund(s) got squeezed to literal death). Gold closed at $904.60, up 4.6%. Overall, the commodities group saw its biggest one-day gain in commodities trading history. As I scanned the breakouts in the market, the majority came from the metals and mining industries. Here are a few:

All four gold stocks are either within a range between the 50-day MA and the 200-day MA or, in the case of Randgold Resources (GOLD), closed above both on its third gap up. I suspect that gold stocks will continue to form gaps up in the next few days until they hit their respective resistance points.

A non-metal stock that broke out today was Secure Computing (SCUR). McAfee announced that they will buy SCUR for $413 million in cash, paying $5.75 per share. If you look on the chart, the reason why the candle is so small is because the day’s range was only two cents. This is a very tight doji formation and usually in this case, the stock drifts in or around this range for quite some time. Watch for any potential breakout, signaling that the stock will surely go higher.

Fairfax Financial Holdings (FFH) was added to the short-selling ban by Canada over the weekend, so that’s one reason for the spike. The second possible driver is FFH’s announcement to make a Normal Course Issue Bid for up to 1.19 million subordinate voting shares. The maximum number of shares able to be purchased represents 10% of the float. I think the short squeeze had to do with the majority of today’s move.

We had a lot of financials fall about 10-30% today, but they did not meet my breakdown rule. Many of these financials look like they might meet my rule tomorrow. Here’s one more for today:

Federal Agricultural Mortgage (AGM) dropped 59% today after they revealed in a filing that it owned $60 million in senior debt issued by Lehman Brothers. Um…isn’t it kind of late for this announcement? Are you looking for a support level? You won’t find one here. Try a chart from 1999.

General Growth Properties (GGP) dropped 24.9% on news that the company is considering selling its properties to raise capital to meet debt obligations. As a commercial real estate investor, I can say that typically in a real estate downturn, residential real estate is the first to go and while that goes on, commercial, multi-family, office space, strip malls, and storage are next in line. Since commercial property has only begun to crack, this stock is toast. Didn’t they see this coming?

There are a lot of housing reports coming out this week including the House Price index tomorrow, Existing Home Sales and Weekly MBA Mortgage Applications on Wednesday, and New Homes Sales on Thursday. Keep an eye out for Lennar (LEN) which reports tomorrow and KB Home (KBH) which reports on Friday. Whatever the cause of the decline, Beazer Homes (BZH) broke its trend and has failed the 50-day and closed below it. It looks like BZH has a good chance of going down from here.