Consider these trades higher risk. The Street absolutely hates these stocks right now. The blood is flowing in the streets. Fear has reached epic levels.
But according to Baron Rothschild and Warren Buffett, that’s exactly when you want to buy.
You see, as much as we hate homebuilder stocks, they’ve been butchered on the realization the recovery never existed. They’ve been beaten up, and pretty much left for dead. But the technical pivot points say they’re a buy again until they revert to mean. Sure, housing starts and permit reports were sickening. Sure, there’s no recovery in housing.
But technical setups tell us the builder stocks need to bounce.
All we want to do is jump in for a quick bounce, get out, and then trade further likely downside. If you decide to buy into these higher risk trades, buy a basket of them. Don’t risk the house. Just play it safe.
Lennar (LEN) – for example – is forming a new base at prior support with oversold MACD and DMI. All we want to do here is trade a likely bounce to $40 and get out. The sell off was overkill. We’re just looking to make some quick money and move on.
Toll Brothers (TOL) is finding support just above $32 with oversold MACD and RSI, as well. Even KB Home (KBH) looks to have found support just above $16 with oversold RSI and MACD.
They’ve been absolutely crushed on the realization that a housing recovery never existed. As the blood flows in the streets, we’re buyers for the near-term, anticipating a short-lived recovery off lows.
Again, if you decide to buy in, buy a basket… and trade with an equal dollar amount in each.
- Buy to open the KBH October 2014 17 calls up to $1.
- Buy to open the LEN November 2014 37 calls up to $2.55.
- Buy to open the TOL December 2014 33 calls up to $2.60.