The Secret of Money-Doublers They Don’t Want You to Know
#7 SPDR S&P Homebuilders(XHB) Puts
By Michael Shulman
Not only will there be no sustainable housing recovery in 2010, expectations of one are going to create a great shorting opportunity for contrarians.
Yes, data show there has been somewhat of a bounce — but this bounce is off a very low bottom. Back in the good, old days, the bottom for
the housing sector was when new home starts were at an annual rate of 1 million. We are at less than half a million currently, yet money is coming
into these stocks. Why? The passage of the homebuyer tax credit and a reduction in inventory. Problem is, both are one-off events.
By March, inventory will be surging again as banks start listing for sale the near 1 million foreclosed homes they have yet to put on the market.
These are typically rather new, low-priced homes, and they will compete with brand-new homes. And more foreclosed homes will hit the market from mid-2010
to mid-2011. Too much inventory not only crowds out new homes, it reduces the price buyers are willing to pay for them. I also suspect that the tax
credit will not renewed in April when it expires.
Bottom line: Short the sector when the charts are on your side through put options on the SPDR S&P Homebuilders (XHB).
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