There are a few open positions at the moment in Inside Value Trader. While all remain on hold, I am recommending some new put positions if you have room.
There is no recovery in housing. There is no reason to get excited about the sector.
Even though homebuilder stocks are down at the moment, they’re still up too high… and need to reverse. KB Home, which was bid higher this morning just warned that its profit margins will sink over the long-term, negatively impacting earnings. It sank shortly after.
I think the same warning is likely with other names in the group, too, which will send most down from recent, unsustainable highs.
This isn’t the first time we’ve played homebuilder downside… and it won’t be the last because bullish arguments aren’t sustainable.
Lennar (LEN) is challenging another top. Failure sends it back to less than $41 on homebuilder realities. Consider buying to open the LEN May 2015 45 put up to $3.50. This has a delta of -0.44.
Even Pulte Group (PHM) is sitting at an unsustainable high that failed in 2013, too. At the time, every one was cheering homebuilders again… That is, until reality snuck in and sent the stock from $24 to $14 in months. Here, consider buying to open the PHM April 2015 21 put up to $1.20.
There is nothing to get excited about with builders.
The bulls never learn.
Ian L. Cooper
Inside Value Trader