[CANSLIM] Homebuilders and stuff

From: Eric Jaenike <ericjaenike@yahoo.com>
Subject: [CANSLIM] Homebuilders and stuff
Date: Thu, 16 May 2002 13:28:20 -0700 (PDT)
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A couple of points to note on the homebuilders (please note: I currently have no position in them, but am keeping a close eye on them as a short, so that's my bias):

1. The stocks have become a bit bifurcated. The weaker players in the industry have not been performing well (CTX, BZH, DHI, LEN etc), while the leaders have been doing well (RYL, NVR). I consider this to be an early sign of weakness, not strength, as the laggards have stopped performing.

2. HOV and WLS have clearly broken uptrend lines in the last week. KBH and NVR appear poised to do the same.

3. Vice Chairman of Toll Brothers, Bruce Toll, filed to sell 1 million of his 3 million shares. (For accuracies sake, in a press release he stated he has sold only 700k, and has no intention of selling the rest. Whatever.) . There was additional insider selling in CTX this morning as well. This goes hand in hand with all the other recent insider selling.

These stocks seem to be highly inversely correlated with strength in the economy (via interest rates). 

I would be extremely careful if I was long these stocks right now. (I am, in fact, looking for short entry points. HOV on a bounce is probably a good entry point. Anyone have feedback/ ideas on entry points?)

ON M:

I am somwhat skeptical of this recent rally. Following up on my previous post on M, note the action on the Russell 2000 today (-1.2%), as well as IJS (-2%). I don't consider this definitive by any means, but I don't consider it bullish that the leading indices (small cap orientation) have continued their underperformance. In evaluating this recent rally off the lows, IMO there have been several yellow flags, including: 1. The markets never really washed out, as indicated by price/volume action or sentiment. 2. The amount the indices gave back last Thurs and Fri. after the Wed. rally. I would prefer to see less retracement, which would be a subtle indication of underlying strength. 3. The distribution day last Friday. Volume upticked only slightly, but nonetheless I would prefer not to see a day like that in a nascent rally. 4. The follow through day was not as strong from a volume standpoint on the Nasdaq as at first glance. Normalize WCOM volume and you wind up with a 2 billion share day, not a 2.5 billion day. 5. Yesterday was a distribution day on the NYSE indices. While the volume uptick was not that large, and a giveback after such a large advance is to be expected, I would still prefer not to see that action. Also, volume on the Nasdaq, while lower than on Wed, was not as much lower as a quick glance might indicate (again, based on a normalization of WCOM volume over Tues and Wed). 6. Underperformance of the smaller cap indices. The large cap indices got way oversold, and could be expected to bounce. The smaller cap indices never got oversold, and so wouldn't benefit from an oversold bounce. IMO, we are witnessing a large cap bounce that is masking weakness in the markets that the smaller cap indices are revealing.

Of course, individual stocks should be monitored based on their own activity (ex. CCRN). 

Eric



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<P>A couple of points to note on the homebuilders (please note: I currently have no position in them, but am keeping&nbsp;a close eye on them as a short, so that's my bias):</P>
<P>1. The stocks have become a bit bifurcated. The weaker players in the industry have not been performing well (CTX, BZH, DHI, LEN&nbsp;etc), while the leaders have been doing well (RYL, NVR). I consider this to be an early&nbsp;sign of weakness, not strength, as the laggards have stopped performing.</P>
<P>2. HOV and WLS have clearly broken uptrend lines in the last week. KBH and NVR appear poised to do the same.</P>
<P>3. Vice Chairman of Toll Brothers, Bruce Toll, filed to sell 1 million of his 3 million shares. (For accuracies sake, in a press release he stated he has sold only 700k, and has no intention of selling the rest. Whatever.) . There was additional insider selling in CTX this morning as well. This goes hand in hand with all the other recent insider selling.</P>
<P>These stocks seem to be highly inversely correlated with strength in the economy (via interest rates). </P>
<P>I would be extremely careful if I was long these stocks right now. (I am, in fact, looking for short entry points. HOV on a bounce is probably a good entry point. Anyone have feedback/ ideas on entry points?)</P>
<P>ON M:</P>
<P>I am somwhat skeptical of this recent rally. Following up on my previous post on M, note the action on the Russell 2000 today (-1.2%), as well as IJS (-2%). I don't consider this definitive by any means, but I don't consider it bullish that the leading indices (small cap orientation) have continued their underperformance. In evaluating this recent rally off the lows, IMO there have been several yellow flags, including: 1. The markets never really washed out, as indicated by price/volume action or sentiment. 2.&nbsp;The amount&nbsp;the indices gave back last Thurs and Fri. after the Wed. rally. I would prefer to see less retracement, which would be a subtle indication of underlying strength. 3. The distribution day last Friday. Volume upticked only slightly, but nonetheless I would prefer not to see a day like that in a nascent rally. 4. The follow through day was not as strong from a volume standpoint on the Nasdaq as at first glance. Normalize WCOM volume and you wind up with a 2 billion share day, not a 2.5 billion day. 5. Yesterday was a distribution day on the NYSE indices. While the volume uptick was not that large, and a giveback after such a large advance is to be expected, I would still prefer not to see that action. Also, volume on the Nasdaq, while lower than on Wed, was not as much lower as a quick glance might indicate (again, based on a normalization of WCOM volume over Tues and Wed). 6. Underperformance of the smaller cap indices. The large cap indices got way oversold, and could be expected to bounce. The smaller cap indices never got oversold, and so wouldn't benefit from an oversold bounce. IMO, we are witnessing a large cap bounce that is masking weakness in the markets that the smaller cap indices are revealing.</P>
<P>Of course, individual stocks should be monitored based on their own activity (ex. CCRN). </P>
<P>Eric</P><p><br><hr size=1><b>Do You Yahoo!?</b><br>
<a href="http://rd.yahoo.com/welcome/*http://launch.yahoo.com">LAUNCH</a> - Your Yahoo! Music Experience
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