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US HOUSING STOCKS BREAKING ONE-BY-ONE. SHORT KBH, PHM, TOL.

I have been watching housing stocks, which I feel to be grossly overvalued. Anyone who thinks housing has bottomed or will bottom soon, should read this article with Gary Schilling.

www.businessinsider.com/gary-shilling-no...

Schilling pretty much agrees with my time-frame that housing will turn back down and head lower. Remember, a real bottom in an oversold market finds NO BUYERS, certainly not a high speculative participation between the fast money players trying to rekindle an appetite for quick profits. I've been targeting 2019 for the real bottom in housing for many years now.

The real bottom of housing will happen when the government and the Fed have forgotten about housing, given up, have wrung their hands of the 'housing problem'.

Anyway, we have charts tonight -- and we recommend short positions on three more housing stocks (after BZH, Beazer Homes, last night): KBH, KB Homes; PHM, Pulte Homes, and TOL, Toll Brothers.

We are looking at the indicator we call CGTS PB Sum Trend, which appears as the red line in the fourth pane down from the top in most charts tonight (if not all).

This indicator generally signals intermediate-term directions of an issue. Of course, we do not follow any one indicator to the detriment of the whole. We want to see trends breaking down (short-term trends break down first, so we look at short-term trends more closely): green line in the top pane; red line in the second pane down. We look at short-term overbought/oversold readings (M2F ALT), red line, second pane from the bottom -- although we look at this less. This helps us determine when to sell -- and sometimes, when we are patient enough -- when to buy. Of tonight's signals, VRX, Valeant Pharmaceuticals has the best M2F ALT timing reading for a short position -- relatively overbought -- it is probably our most well-liked new short position tonight because of this, and other readings.

We also always looks at the two primary momentum indicators: CGTS, red line, top pane; and M5, blue line, top pane. When these indicators are making new lows, and trends are decaying, short-selling opportunities abound.

US Housing Stocks to Short

KBH, KB Homes

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PHM, Pulte Group Housing

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TOL, Toll Brothers

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More Index Deterioration.

In looking at the CGTS PB Trend Sum Indicator, we are getting a sell signal on both the DJIA, Dow Jones Industrial Average, and the BVSP, the Bovespa, the Brazil Index.

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We ran a screen of issues for those making new CGTS PB Trend Sum Highs (+1) and Lows (-1). The list below is culled from this screen -- and shows some positions we would feel comfortable making tonight. It is very hard to make long trades in a down market -- unless with issues such as TBonds long and long positions in Inverse ETFs, which profit from stock declines.

Some of our short position list have put options prices includes as well, as our attempt to find out the 'real' cost of put options of differing strike prices. Options in-the-money are (almost) always cheaper than out-of-the money options.

For instance, a Jan 32.5 put on OCN sells for 2.2 points but it is out of the money so it is costing a buyer the 2.2 plus -.65 difference between the current price and the strike price, meaning the cost is actually 2.725 points. The Jan 35 put sells for 3.6 points but it is already worth 1.85 by being in-the-money meaning the actual cost is 1.1 points.

One can't really compare prices between options for two different stocks, without taking into account volatility. We may look at that later at some point. For tonight, we want to make sure we are considering the cheaper options between different strikes.

LONG IEF 109.01 T BOND CGTS TR SUM
LONG RWM 36.82 SHORT RUSSELL CGTS TR SUM
LONG RXD 59.72 SHORT HLTHCARE CGTS TR SUM
LONG TIP 122.84 BARCL TIPS CGTS TR SUM
LONG TSU 19.17 TIM ELEE CELLULAR CGTS TR SUM
LONG TUR 59.5 TURKEY ETF CGTS TR SUM
LONG USDEUR 0.7852 USDEUR CGTS TR SUM
LONG USDRUB 31.71 USD/RUBLE CGTS TR SUM
           
SHORT OCN 33.15 OCWEN FIN CGTS TR SUM <---1
32.5 1.95 2.2 2.075 -0.65 2.725
35 2.3 3.6 2.95 1.85 1.1
SHORT PPS 46.8 POST PROR REIT CGTS TR SUM <---1
45 1.4 1.4 1.4 -1.8 3.2
50 1.05 5.5 3.275 3.2 0.075
SHORT NTRS 48.09 NORTH TRUST CGTS TR SUM <---?
45 1.45 1.55 1.5 -1.09 2.59
50 4.4 4.7 4.55 3.91 0.64
SHORT DWSN 22.59 DAWSON CGTS TR SUM <---1
22.5 0.4 1.75 1.075 -0.09 1.165
25 1.8 4.4 3.1 2.41 0.69
SHORT ECH 59.74 ECH ENCANA CGTS TR SUM <---1
59 0.95 1.3 1.125 -0.74 1.865
60 1.45 1.8 1.625 0.26 1.365
SHORT EUFN 17.54 EURO FIN IND CGTS TR SUM
SHORT ETFC 7.74 ETRADE CGTS TR SUM <---
7.5 0.4 0.41 0.405 -0.24 0.645
9 1.38 1.42 1.4 1.26 0.14
SHORT KBH 14.09 KB HOUSING CGTS TR SUM <---1
14 1.35 1.39 1.37 -0.09 1.46
15 1.93 1.98 1.955 0.91 1.045
SHORT ICN 20.871 IND RUPPEE CGTS TR SUM
SHORT JEC 38.79 JACOBS ENG CGTS TR SUM
SHORT JPM 39.29 JP MORGAN CGTS TR SUM
SHORT SNP 101.78 CHINA PETROL CGTS TR SUM
100 2.95 3.6 3.275 -1.78 5.055
105 5.4 6.4 5.9 3.22 2.68
SHORT TBT 58.81 SHORT TBOND CGTS TR SUM
58 2.38 2.43 2.405 -0.81 3.215
59 2.9 2.95 2.925 0.19 2.735
SHORT TYO 22.36 SHOT TBOND CGTS TR SUM
SHORT VRX 53.56 VRX CGTS TR SUM
50 2.05 2.25 2.15 -3.56 5.71
52.5 3 3.2 3.1 -1.06 4.16
55 4.2 4.4 4.3 1.44 2.86
SHORT VVUS 10.66 VIVUS CGTS TR SUM
SHORT XME 41.435 SPIDER MIN CGTS TR SUM
SHORT XOM 86.07 EXXON MOB CGTS TR SUM
           
SHORT PHM 15.235 PULTE M4 21 <---1
15 0.96 0.99 0.975 -0.235 1.21
16 1.49 1.53 1.51 0.765 0.745
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We like short positions on each of the issues with option data attached above. Charts will show one why.

VRX, Valeant Pharmaceuticals.

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DWSN, Dawson Geophysical.

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ETFC, E-Trade

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ECH, Echana Corp.

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The next three charts, all considered short candidates, all appeared first on our list of possible long positons, because the CGTS BP Sum Trend turned positive. But each is clearly experiencing a failed rally, with trends in the middle of a current breakdown (see trends in top pane).

OCN, Ocwen Financial

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PPS, Post Properties REIT Retail. Many REIT's have collapsed since the Fed entered the mortgage business under Ben Bernanke's QE IV morgage broth buying spree. We may talk about the reasons for this in a later letter.

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NTRS, Norther Trust Corp. Note how all of these last three charts illustrated bull rallies that have been suddenly torpedoed by sellers and which are all three attempting to turn down.

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Best fortune to all my readers.

Michael J. Clark

CGTS, Hanoi, Vietnam

15 Novenber 2012