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June 20, 2006

Another Non-Event

The main point of curiosity for today was how housing-related stocks, particularly Building Materials Holding, would react to the housing starts report due out this morning. The number came out a bit higher than anticipated, and I sat back hoping BMHC would react positively to the news, giving me a chance to re-enter my old short at a favorable price. The shares swung about wildly, then closed at par for the day. Home builders, on the other hand, sank about 1.6%.

The point to be gleaned from the price action is that sentiment is deep in negative territory for the homeys. Several months ago, an up tick in housing starts would get housing shares running, as everyone speculated that perhaps the game wasn't quite over. These days, an up tick in housing starts means the builders are just getting themselves into deeper inventory problems. In fact, had the housing starts number been slow, there may have simply been a more negative reaction across the board. Maybe now all news is bad news. Maybe if next week's home sales numbers come out well, the homeys will be down a little, and if they come out poorly, the homeys will be down a lot. I really can't foresee a scenario where they would go up a lot, and am considering shorting two or three builders ahead of next week's reports.

Overall, there wasn't much meaningful action in today's session. Precious metals were up solidly, but did not have a tremendous effect on mining shares. Oil started the day up a half percent, but ended down a half percent. Tech stocks were mixed, with the only big loser on my screen being SanDisk. SanDisk continues to show a lot of weakness, and for reasons I've outlined in previous posts, I believe it will be one of the big losers... or winners, depending on your point of view... when the market gets back to its task of realigning itself with sanity.

Disclosure: Long BMHC, SNDK Puts


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