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November 17, 2006

Housing Hounds Futures

Stock index futures took about a half percent hit before the open when a dismal housing starts report showed a nearly 15% tumble from September to October. Apparently, traders were taken aback by the size of the decline, and it was a breath of fresh air to see the news discounted as implicating a recession rather than celebrated simply as a reason for the Fed to cut rates. However, we are already effectively in holiday mode, and the worst tick of the day was seen not long after the open. Stocks petered higher through the end of the session.

So, one might wonder how the homeys did on news that demand for their product is weaker than anticipated. For the most part, they ignored the news. The SPDR Homebuilder ETF lost 6c for the day. Building Materials Holding, one of the nations biggest suppliers to the industry, saw its shares flat. Granted, these stocks have already been pummeled, but many of these issues, including BMHC, were ten-baggers during the boom and have given back less than half of those gains. By no means is there a rule that all the gains will unwind, but I believe much more will be given back as the psychology around this industry continues to blacken.

Precious metals were sinking again in the early going, but once again put in nice reversals to close higher. The continued ability of metals to counter weakness is a wonderful sign for us metals bulls. One day soon, this strength will catch fire and carry prices much higher.

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