Great Shorting Opportunities Ahead in Home Builders, Banks

Includes: BZH, DHI, KBH, MTH
by: Bill Cara

[The following is excerpted from Bill Cara's Daily Report]

As I see it, the Euro looks to be headed to a test of 1.38, which would be the time to move back into precious metals with at least a partial position. There is support for the euro at 1.40. The Cdn Dollar looks to be going to test 93.

The Financials will have to top out here for me to want to move strongly into these currencies and the precious metals though.

Despite rising mortgage rates and tightening credit, the share prices of US House Builders soared Tuesday. Some of the gains were of the nose-bleed variety, such as Meritage Homes (NYSE:MTH) (+18.1%), KB Homes (NYSE:KBH) (+14.2%), Beazer Homes (NYSE:BZH) (+13.3%) and DR Horton (NYSE:DHI) (+12.2%).

Traders are being told that rates will now come down (despite inflation and the crowding out in the capital markets as banks scramble to recapitalize) and credit will ease (despite special loan departments at the banks working overtime to squeeze their clients).

I think the market is setting up a terrific shorting opportunity in the residential construction companies, and in the weakest banks and dealers.