Beat Down Homebuilders Index Offers Market Power to Beat Dow 12,000
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J. Christoph Amberger, Founder and President TaipanFinancialNews.com
TFN Sector Alert - 10/20/06
Beat Down Homebuilders Index Offers Market Power to Beat Dow 12,000
The builders themselves keep slashing forward earnings, but both Wall Street and the market are betting that interest rates will stay flat, or may even drop a notch or two as the Fed looks to forestall a downward drift toward recession.
Is this a realistic expectation? Absolutely! When faced with slow moving inflation on the one hand and a headline reading “ Bush Bernanke Recession!” on the other, the odds that the Grey Men at 20th and Constitution NW will acquire spines and decide to fight inflation with an increase are virtually nil.
Several major brokerage houses upgrades of key builders have lifted the Dow Jones US Home Construction Index (DJI: DJUSHB) some 18% since July’s bottom. But this is the mere beginning. This pure index could put on another 21% before it runs into resistance.
But this is a simplistic way to get on board this trend. There is another way to ride this turnaround story that is more cleverly diversified and offers traders superior leverage. Where the Dow Industrials are looking for another 5%, and Dow Homebuilders can expect maybe 21%, there is a way to rack up 116% gains on the same move.
Adam Lass
Founder, WaveStrength
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