The exchange-traded fund that tracks the homebuilders, XHB, is showing a strong bear signal on the macd, moving directly from well above the zero line to more than 20 points below.
XHB has declined every day since Monday and at today's low stood 6.6% below the high set on Feb. 17.
XHB, trading at $15.48, has been in a sideways pattern since August of 2009, ranging mainly between $16.30 and $14.20, with a few overshoots. This week's decline puts it within about 8% of the bottom of support, which is a fair amount of room.
It could be played as a straight directional downward, but I would want to be very nimble about getting out. A $14-strike bear call spread for March would provide 82 cents in credit.
Or as an iron condor with a maximum profit at expiry that's $1 or $2 wide.
The $2 version, $14 to $16, covers most of support and resistance and provides 24 cents premium for the March options.
Narrow it to $1, skewed a bit to the downside, and you get at 75 cent credit. That's maximum profit at $15 to $14, hedged by $2 on either side ($17, $12).
Tim-
ReplyDeleteI'm seeing the same signal you are, but interpret it differently.
If you look @ the sudden,and mostly positive, interest in the Homebuilders I think you will see the slight weakness turn into extensive strength soon.
Akso, if you track the holdings of this ETF daily- as I do- you will see that whoever is trading this thing is pretty nimble. Almost overnight the top 10 holdings can change from outright homebuilders to a mix of HD, LOW, Lennox, Sherwin Williams, Owens Corning, etc. All home improvement/infrastructure plays.
Whoever he is he's been VERY GOOD for months now. Good Luck! I see what you see but just disagree.
400 plus LEAP Call contracts.
Dauntless
One other thought:
ReplyDeleteOn 2/19 just before 1 pm E. a Talking Head said on CNBC "WHO IN THE HELL WOULD BUY THE HOMEBUILDERS NOW???"
In less than an hour I had another dozen Jan 12 $25 call contracts in my account.
This is, typically, the BELL AT THE BOTTOM.
Dauntless
(Laughing!) Agreed -- had I known about the CNBC comment, I would have closed my bear position immediately.
ReplyDeleteI think one difference in our approaches may be the distance of the time horizon. You're a LEAPS player, so I'm assuming that your trades have a moderately long lifespan.
I trade options spreads, so my horizon is rarely more than 30 calendar days. (My current positions all expire March 20.)
Anyhow, I hope you're wrong in the short-term and right in the long-term.
Jeez- I'm hoping I'm right in the short term and right in the long term!!
ReplyDeleteBut wrong just long enuff for you to close out.
There is an interesting chart in the XRT that shows -RETAILERS- who would have thought that! breaking out today. If they follow through this week and continue that run, the charts suggest they can go up another $10.
I may be bold, but not stupid- so of course I missed the retailers. Who the hell would buy them???
The XHB is just a half-step behind, nearing long term resistance. I hope to see it breakout and the next resistance would be around the 20-22 level.
Yeah, I tried shorter duration options but man can you get burned. More power to you!
Dauntless