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Dauntless
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30 year trader. Day, Week, Month, LEAPs
  • JUST-THE-FACTS-FRIDAY 0 comments
    Apr 25, 2010 11:30 AM | about stocks: NVR, RYL, KBH, HD, LOW, DHI, AAN, SHW, TOL, LEG, LEN, LII, WSM, OC, MHK, SSD, MAS, USG

    I spent several years in the Intelligence community and I've found, over time, that those skills transfer well into the understanding of the markets. That doesn't mean it is always obvious what the next move in the market will be. The Intell game is often a world of odd shadows and mirrors reflecting lies. See what I mean about skills transferring well?

    From some experience briefing a situation I've learned that most guys getting the briefing will accept your estimation and opinion of a situation, but you better have some hard facts to demonstrate how you got to the Bottom Line.

    Here's my take, and some Friday Facts I hope back that up. 
     
    I'm LONG the XHB and have been since building one of largest positions in my 30 year trading career- starting last October. It is cliche, but true, that Buffett (not Jimmy) buys things when everybody hates them. I've learned through my own trading that buying what everybody loves doesn't work. Picking out the stinky stuff and buying is very hard. And it works. I will close this with an interesting note about that.* 

    I'm a chart junkie but I've found that putting what the charts say into words helps me explain them to others who hate charts. And General Officers. Here's some words from charts you might find interesting. When I said them, out loud, they surprised me.

    The XHB - The Homebuilders SPDR - is NOT mostly Homebuilders. At least until recently. That's kinda odd, isn't it? If you checked the holdings until just recently you would find that the ETF was actually mostly composed of, in order of percentage holdings:
     
    Universal Forest Products - Industrial
    Tempur Pedic - Bedding Home Furnishing -  Consumer discretionary
    MDC Holdings - Homes - " "
    Bed Bath and Beyond - "   "
    Meritage Homes -  Homebuilder
    Pulte Homes - Homebuilder
    Centex Consumer discretionary
    NVR - Homebuilder (Maryland/D.C.)
    RYL - Homebuilder
    KB Home - "   "
    Home Depot - Consumer discretionary
    D R Horton - Homebuilder
    Aarons - Consumer discretionary
    Sherwin Williams - Paint/Consumer discretionary
    Toll Brothers - Homebuilders (High-end)
    Lowes - Consumer discretionary
    Leggett & Platt - Furnishing/Materials/Engineering
    Lennox Intl - HVAC
    Williams Sonoma - Specialty Home Furnishings
    Owens Corning - Insulation Products
    Mohawk Industries - Carpeting/Flooring
    Simpson Mfg - Construction products/Engineering
    Masco - Home improvement products
    US Gypsum - Sheetrock/fiberboard.

    You can see these at: ETFINVESTMENTOUTLOOK.COM. XHB is 7th on A/D now.

    You can also hit HOLDINGS under Yahoo Finance and see another list of Top 10 holdings within the XHB. This Yahoo list seems to be updated more frequently, and as of Friday shows a greater concentration in the actual Homebuilders than the Consumer Discretionary. This is good. 

    I want to emphasize 2 points here, after watching XHB and these lists on a daily basis since last September, when I began research before building the position. 

    1) There seems to be a huge gap between what the public or average investor percieves this ETF to be, and what it is in reality. In the anecdotal comments I've heard since last Fall every mention of the XHB has been decidedly negative - if not downright disparaging. In doing the daily research I was always amused at those who professed to be an expert, yet got this ETF completely WRONG!

    Often the Top 10 holdings of the XHB did NOT have even one actual homebuilder.

    2) Whoever is trading this ETF seems to be moving the internals around quite a bit, and also seems to have a pretty good feel for the flow of the market. Let me say clearly I do not have any vested interest in the management of the XHB, but I do recognize quality when I see it. The trader was even to slightly below the SPY until Feb, when he begins to beat the SPY and culminates in beating the SPY by over 20% recently. Importantly, almost 10% of that better performance was realized on Wed/Thurs/Fri this past week. That will show up in some Volume numbers below. This is my summary after 8 months of following XHB closely:

    THE XHB IS NOT WHAT AVERAGE PEOPLE THINK IT IS, AND IT SEEMS TO BE TRADED VERY ADROITLY IN FAVOR OF IT'S INVESTORS - ESPECIALLY LATELY!! SECONDLY, THE ETF AND THE MAJORITY OF THE UNDERLYING HOLDINGS - PRIMARILY INDUSTRIAL MATERIALS - EITHER BROKE OUT TO 3 YEAR HIGHS THIS WEEK, OR ARE BREAKING OUT, OR HAVE ALREADY BROKEN SIGNIFICANTLY ABOVE MULTI-YEAR PRICE AND VOLUME LEVELS.  

    As I promised, here's The Friday Facts summarized from the charts:

    VOLUME!
    The XHB typically trades an average of 6M /day. 
    On Friday, the XHB traded almost 17.5M shares. 3 times the average!
    (Collateral note- The ITB or the iShares Dow Construction ETF typically trades 500K/day. On Friday it traded 4.5M shares. 9 times average! Follow-up later.)

    CONCLUSION: If your Division opposes an Armored/Armored Infantry Division and typically hears 'noise' @ the 50 decibal level for 2 to 3 years, and suddenly hears 150 to 450 decibals on Friday 4/23, SOMETHING IS HAPPENING! 

    PRICE! Every component of XHB is breaking out above 2007 or 2008 Chart Highs!

    IT'S TIME TO WAKE UP THE GENERALS BEFORE MONDAY MORNING!!!!

    *On Buying the Stinky Stuff... Feb 19th an expert on TV says "Who in the Hell would BUY the Homebuilders??" In less than an hour I added a dozen more CALL contracts to my holdings.

    Disclosure: LONG XHB via LEAPS 2011/2012 (Strikes $20-$30)
    Themes: XHB, ITB Stocks: NVR, RYL, KBH, HD, LOW, DHI, AAN, SHW, TOL, LEG, LEN, LII, WSM, OC, MHK, SSD, MAS, USG
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