There are lots of ideas out there on what to trade. The trick is synthesizing news-you-can use from the noise. Choosing ideas from veterans doesn’t make it a sure thing. But listening to ol’ timers…well, there is so much to be learned from experience. And I love to learn which is why I scan and cull and cultivate a short-list of traders/investors I follow and their trading/investing ideas. Sometimes an idea appeals so I make it my own.
Themes I’m watching right now from experienced captains and where they are going on their fishing expeditions:
Martin Pring:Â Subdued response to great housing numbers is a bullish sign
When a stock doesn’t drop from a downgrade, I notice. It’s a sign of strength, albeit subtle. It’s also a sign the auction of buyers and sellers may have found a floor.
In the same way, Pring draws attention to something the media and traders may have ignored:
“a blockbuster increase in housing starts was reported but attracted miniscule attention. Part of the jump was due to a depressed September number, so some could argue that it was not so significant. Even so, the new numbers pushed starts into a new post-financial crisis level high. But why am I making such a big thing about this? The reason is that housing starts are a really long leading indicator. Financial indicators usually move before starts, but starts are the first thing to reverse that you can touch and feel, and that means that we have a reliable piece of evidence that the economy has emerged from its corrective path of the last two years and is set for an improvement in its growth rate.â€
How I Interpret Pring’s Analysis
Everyday I go through the SPDR ETFs to size up money flow. The Housing ETF, XHB, is closely correlated to the WOOD ETF. Makes sense: wood is needed for building. Anyway, it is clear that WOOD is at its 52W highs while XHB has room to go. It helps that XHB is above all its moving averages and has very little resistance until ~$36. Of course, the bigger gains for this options trader can be found from playing momentum in the companies that make up the XHB. I will be fishing around in these waters: DHI, HD, LEG, MHO, PHM, TOL, WHR.
