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Double Whammy House Party Profits! (XHB,XRT)
We’re going to open with a look at two open trades that are closely related to each other.
Let’s get to it.
On November 4th, we opened a trade using the SPDR S&P Homebuilders ETF (NYSE:XHB). The letter was called ‘F’ You Build It, and there we offered our bullish perspectives on both housing and the stocks related to that sector. But before we go any further, just a quick word on XHB, which, as anyone who’s delved even superficially into the matter can tell you, is not a pure play on housing at all.
XHB is a very broadly based fund comprised of a majority of stocks that are not themselves homebuilders. And it’s for that reason that we chose it.
The homebuilders move, of course, on both broader news currents related to the sector, as well as earnings and operational news for each individual company. But the SPDR S&P Homebuilders ETF is a different animal altogether, comprised of a great many retailers and consumer durable manufacturers who generally see good sales when people are hot to buy homes. Washing machines, dishwashers, home alarms and furniture outlets, of course, do a brisk business when home sales are flourishing.
And that’s why companies like Home Depot, Whirlpool, A.O. Smith (manufacturer of water heaters), Lowe’s, Bed, Bath and Beyond, Lennox International (air conditioning/heating/ventilation systems), Restoration Hardware, Tempur Sealy (the bedding experts) and a host of other similar companies figure prominently on the XHB holdings list. In fact, the above mentioned companies comprise over a third of the fund’s total worth. This is clearly not a builders-only focused fund.
The Power of Retailing
When we opened our trade, we believed in the prospects of the homebuilders themselves, but we also knew that if there was a lag in that sector we could also count on a hopping retail climate to assist us with the trade. And it turns out that’s precisely what happened. Recent numbers from the housing market have disappointed, including most recently a steep drop in pending sales and an overall decline in house prices.
We note also the disconnect between builders expectations for the industry and actual sales numbers, as seen on the chart below –
How the disconnect between official NAHB expectations and overall sales will ultimately be resolved is an open question.
And yet at the same time the retailers have flourished. A quick look at the daily chart of any U.S. based retail ETF shows a tremendous and consistent surge for the sector over nearly every time period since the bull market began in 2009.
Have a look at one year’s worth of the SPDR S&P Retail ETF –
We’ve inserted the five year chart, as well, to give you an idea of both the magnitude and the consistency that we mentioned above.
In short, the homebuilders ETF, despite its own strengths, also leaned heavily on the retail sector for its gains.…
Profiting In The Third Dimension With Makism 3D Corp (MDDD)
When it comes to a brand new industry or invention, it’s common to hear pundits hype them as “paradigm-shifting” or “category killers.” In the case of 3-D printing, it may not be possible to hype this new technology enough, as it’s already proving to be a game-changer across a surprisingly wide variety of industries. That’s why I want to bring your attention to a new company in the 3-D printing game—Makism 3D Corp.—trading over-the-counter under the symbol MDDD (Get it? Three D’s!)
First of all, if you’re not familiar with 3-D printing, it’s important to understand both its current applications and why it holds out so much promise. Also known as “additive manufacturing,” 3-D printing refers to the process of making a solid three-dimensional object from a digital model. The object is created using an additive process in which successive layers of material are laid down in different shapes to form the final product.
Although the technology has been available since the 1980’s, it wasn’t until earlier this decade, around 2010, that 3D printers started to become widely available commercially, gaining the attention of the financial markets in the process. According to Wohlers Associates, a consultancy firm, the market for 3D printers and services was worth $2.2 billion worldwide in 2012, up 29% from 2011. Because the technology has such a wide-range of applications—including industrial design and production of all stripes, engineering and healthcare, just to name a few—the size of the 3-D printing market could continue to grow exponentially going forward.
Enter Makism Corp., a 3D printing start-up based in the United Kingdom whose goal is to bring 3D printing to the mass consumer marketplace—part of what’s called the “Maker Movement.” In late-November, the company announced that it was about to launch its flagship line of home and office 3D printers, which the company has dubbed the “Wideboy.” Ready to use out of the box, the Wideboy is being designed to “empower organizations and individuals to affordably create high quality individually manufactured prototypes, parts, and objects, rapidly and with a high degree of precision,” the company said.
The flagship model Wideboy is a large A4 format dual extruder 3D printer optimized for the reliable utilization of common PLA and PVA support material. Its features include large A4 format build areas, multiple extruders, a 3 year parts warranty, and pre-calibrated functionality in an attractively designed package. The Wideboy provides many of the features of the larger printers in the company’s product line-up, which include the Wideboy Pro and Mega models. The projected price for the Wideboy is $1,499.
According to Makism management, the larger Wideboy Pro and Mega models offer the same high quality components as the Wideboy, but with advanced professional features such as temperature controlled enclosures, heated build platforms, and carbon filtration which enables users to safely and reliably employ a wider range of fabrication materials. All printers come with USB and Wi-Fi connectivity, dual extruders (the Mega offers up to four extruders as an option), high-precision 2 and 5 phase stepper motors, a user-friendly interface, and 3 year parts warranty.…
GLD – You Made My Life a Living Hell!
A recent piece of correspondence by a regular reader has prompted us to make a brief macro-review before we take on the week.
Please remember where we’ve been.
This is a bull market that has weathered –
- the much ballyhooed ‘fiscal cliff’,
- the ‘sequester’,
- the European debt debacle,
- the highly anticipated Chinese hard landing,
- QE 1,2 and 3 in all its iterations,
- a year and a half rise without a correction,
- the latest government shutdown,
- Bernanke screaming,
- Janet Yellen,
- Obama Liking it and Keeping it,
and a host of other crises large and small, real and imagined, that have been hammered into our ears by the media for almost five full years.
The market keeps rising.
So when the good folks who read our rantings (and we’re forever grateful for each and every one of you!) say that we only have a few hundred Dow points before the top, that the coming January debt ceiling showdown will mark a decisive market turning point, and that the fear of midnight is soon to befall us, we remind you once again –
The correction is still a ways off.
In the meantime, we’re trading.
We’re going to begin this week with a look at some recent action in the commodities sector. We’ve spent a good deal of time addressing oil, natural gas, gold and gold miners in some of our latest letters, but we’re going to step back for a moment and try to assess the bigger picture.
Let’s start with a chart of the Power Shares Deutsche Bank Commodity Index Tracking Fund (NYSE:DBC), one of the more popular and liquid ETFs on the market, and, for our purposes, a reliable gauge of movements in the broad commodity sector.
We start by noting that all the stock’s moving averages are unfurled and trending lower – a bad sign.
Also a head and shoulders top (in blue) with the neckline broken three weeks ago occurred at the same time that a longer term trendline (in red) was also broken.
Third, and perhaps most damning, support was undercut just two weeks ago when the stock hit a new 52 week low at $25,
At that point we were all but assured lower prices from the commodities and understood that any bounce higher in the interim would be of a temporary nature only.
If there’s a ray of hope for those still bullish on commodities, it resides in the current RSI reading (black square, at bottom). Whereas both RSI and MACD indicators have been on-and-off underwater for two and a half months now, RSI just peeked its head above the surface in the last two trading sessions. And this comes at a time when price action has also risen to the junction of the head and shoulders neckline and the short term moving average (red circle, at right).
If there’s to be any hope for commodities over the mid- to long-term, DBC will have to rise above this level and stay there.…
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