9/16/2007 9:59:35 AM
Indicative of the collapse in housing, this stock shows it well.
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I don't normally get off topic in the barometer - but this morning the financial shows were talking about housing, so I thought I'd take a look to see just how bad it is.
This stock is an important lesson in P/E ratios. Just because BZH has a 8.8 P/E ratio, doesn't make it a good buy. This stock has been sporting a pretty good P/E ratio for some time - as it's been dropping from 80 to 8. And while housing may finally show some signs of bottoming here, there's a general rule that housing stocks will bottom some several months before the actual housing market does.
So if you're in the market to buy like I am, expect two things. First, I'd expect that we'll be seeing a bottom in housing sometime next year and second, don't expect the price of your home to ramp back up. Housing will likely remain a dead investment for the next decade - as do most assets that go through a bubble.
You may also need to temper my comments depending on your region. I happen to live in a housing market where things got pretty hot. I've also been looking for over a year and a half, going to open houses as part of my research. It's kind of funny, as most of the brokers know me and expect me. But when it comes to buying a house, your biggest investment that you'll ever make (in a tangible asset), I believe that homework is the key. When I first started, I wasn't sure what I wanted. But over the course of the last year and a half, I know exactly what I want, what it should cost, and so on. So walking into an open house, it generally takes me a few minutes to do a comparative value analysis in my head.
So for those of you who are new to this whole cycle thing, get used to it - it'll happen again. The last time I bought (built) a house was back in 1992 - and the conditions were similar. By comparison, I think the conditions then were a little worse than they are now, but we're not at the bottom yet, and builders are supposedly smarter, so we may not see as many vacant abandoned neighborhoods as we did back then.
Stock Barometer Analysis
The barometer remains in Buy Mode.
The Stock Barometer is my proprietary market timing system. The direction, slope and level of the Stock Barometer determine our outlook. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction.
Stock Barometer Cycle Time
Monday is day 3 in our Up Cycle.
The Stock Barometer signals follow 5, 8, 13, 21 and sometimes 34 day Fibonacci cycles that balance with 'normal' market cycles. Knowing where you are in the current market cycle is important in deciding how long you expect to maintain a position.
Potential Cycle Reversal Dates
2007 Potential Reversal Dates: 1/10, 1/14, 1/27, 1/31, 2/3, 2/17, 3/10, 3/24, 4/21, 5/6, 6/15, 8/29. We publish these dates up to 2 months in advance.
10/19 is our next key reversal date. I think a 4 year low has been put in and the market should climb higher here.
My Additional timing work is based on numerous cycles and has resulted in the above potential reversal dates. These are not to be confused with the barometer signals or cycle times. However, due to their past accuracy I post the dates here.
2006 potential reversal dates: 1/16, 1/30, 2/25, 3/19, 4/8, 5/8, 5/19, 6/6(20), 7/24, 8/20, 8/29, 9/15, 10/11, 11/28. 2005 Potential reversal dates based on 'other' cycle work were 12/27, 1/25, 2/16, 3/4, 3/14, 3/29, 4/5, 4/19, 5/2, 6/3, 6/10, 7/13, 7/28, 8/12, 8/30-31, 9/22, 10/4, 11/15, 11/20, 12/16.
The following work is based on my spread/momentum indicators for the QQQQ, GLD, USD, USO and TLT. They are tuned to deliver signals in line with the Stock Barometer and we use them only in determining our overall outlook for the market and for pinpointing market reversals. The level, direction, and position to the zero line are keys in these indicators. For example, direction determines mode and a buy signal 'above zero' is more bullish than a buy signal 'below zero'.
QQQQ Spread Indicator (NASDAQ:QQQQ)
The QQQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us an idea of the next turn in the market.
Gold Spread Indicator (AMEX:GLD)
To trade Gold, utilize the Gold ETF AMEX:GLD. This gives us a general gage to the overall health of the US Economy and the markets, as well as to assists us in the entry of positions in our stock trading service.
US Dollar Index Spread Indicator (INDEX:DXY)
To trade the US Dollar, I'd utilize the Power Shares AMEX:UUP: US Dollar Index Bullish Fund and AMEX:UDN: US Dollar Index Bearish Fund.
Bonds Spread Indicator (AMEX:TLT)
To trade Bonds, I recommend Lehman's 20 year ETF AMEX:TLT. Note that the direction of bonds can have an impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.
OIL Spread Indicator (AMEX:USO) *NEW*
To trade OIL, utilize AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction can have an impact on the stock market.
Supporting Secondary Indicator
I monitor over a hundred technical indicators, some that are widely followed and some that are proprietary. These indicators break down the market internals, sentiment and money flow and give us unique insight into the market. I feature at least one here each day in support of our current outlook - and to give you an education on what professional traders utilize.
Summary of Daily Outlook
The barometer remains in Buy Mode. There's a Fed meeting on Tuesday. Volatility remains high, which can translate into a pretty significant move higher - following the Fed Meeting. We could also be seeing volatility returning to normal levels - oscillating between 40 and 20 as it did for a significant amount of time in the past.
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If you have any questions or comments, email me at Jay@stockbarometer.com.
Regards,
