SPDR Homebuilders ETF Rallying: How Could This Be? (Part II)

My trading strategy is fairly simple. I identify a dominate theme and then buy leading stocks in that theme. This has worked quite well for me over the years. Back in the good old days it was the Internet and stocks like AOL (TWX), CMGI (CMGA), Cisco (CSCO), Intel (INTC) and Microsoft (MSFT). Over the past three years, it has been industrialization of the emerging markets. This led to the formation of my Big Build-Out [BBO] portfolio and stocks like Companhia Vale do Rio Doce (RIO), Southern Copper Corporation (PCU) and BHP Billiton Limited (BHP).

Most recently I have formed The Big Spend [TBS] portfolio to capitalize on the new wealth being created in the emerging markets. The thinking being that people in the emerging markets are no different than ones in the developed markets - money burns holes in their pockets too and must be spent. Stocks like AAPL, NOK and MA form the nucleus of the TBS portfolio.

This strategy also keeps me away from themes where I can’t identify a driving catalyst. A few weeks ago I wrote an article, SPDR Homebuilders ETF Rallying: How Could This Be? The Homebuilders ETF (XHB) was rallying, but why? Are interest rates going down? Nope. Have the homebuilders sold off their bloated inventories yet? Nope. Has the guy down the street sold his house yet? Nope.

Using a fundamental theme as the first screen convinced me to ignore XHB’s buy signal. It looks like it was the right decision