The home-builder stocks have been coming under some selling pressure since the start of April. Many talking heads in the financial media are now calling the sector run as being over. Most traders know that every industry group will experience corrections. That seems to be what is happening with the home-builder stocks at this time. Below I will list three reasons why the home-builder sector can still trade higher after this current correction is over.
1. Home rental prices have increased dramatically over the past several years in the United States. Many people are now thinking that it might be cheaper to own a home instead of renting one. Obviously, property taxes and home-owner insurance are two reasons why renters continue to stay in a rental property, but if rental prices continue to surge the psychology of home-ownership will start to change.
2. Over the past five years many hedge funds and private equity firms have bought a lot of single family homes. Leading private equity firm, The Blackstone Group LP (NYSE:BX) was on a home buying binge until last year. These home purchases by the Blackstone and others institutions have taken a lot of supply off of the market. Many people that are now in the market to buy a home are starting to pay the offering price for a house. This will eventually force potential home buyers to build a home as the supply in the market-place continues to diminish.
3. Another major factor that will keep the home-builder sector intact in the near term is the fact that interest rates are at historical lows. Currently, the rate on a 30-year fixed mortgage is around 3.80 percent. The only problem with the low interest rates is that the banks still are not lending money like they did in the past. When the banks start to ease their current lending standards this will only boost home ownership demand.
Recently, many of the major home-builder stocks such as Lennar Corp (NYSE:LEN), PulteGroup, Inc. (NYSE:PHM), and DR Horton Inc NYSE:DHI) have all declined sharply after reporting earnings. All of the declines in these home-builder stocks should eventually lead to another buying opportunity. Traders that want to follow the entire home-builder stock sector can trade and follow the iShares US Home Construction ETF (NYSEARCA:ITB). At this time the ITB will have major chart support around the $24.00 level. This area should be a major buying opportunity in the home-builder sector.
Wal-Mart Stores, Inc. (NYSE:WMT) has been plagued with poor stock performance over the last four months. A compilation of poor sales versus expectations and hiking their minimum wage has killed their stock price. Since its peak in January at $91.00, it has fallen to a recent low of $77.50. This is 15% drop in just four months.
This is all about to change. The stock is reversing today off a major support level shown in the chart below. In addition, with inevitable rising interest rates, the economy is likely to slow, if not slip into another recession within the next 12 months. This will push more people to shop at Wal-Mart and raise revenue. In addition, the hike in pay for employees, while a short term negative to earnings will likely increase the quality of worker. Less stealing, more productivity means more revenue per worker for each store. This combination gives Wal-Mart stores a no brainer buy with upside to $86.00 in the next six months.
These are three potential trade setups I am looking at for this week (on my watch list). All have multiple factors that signal an extremely high reward stock chart setup that is forming. This is how the pros analyze charts and make big profits. Notice how all plays have strong price direction and are retrace candidates. Ultimately, look for strong stocks that are pausing/pulling back for a buy. Once you see that, just patiently wait for the pattern to form and the right price to hit. A time count gives added high reward, low risk points. [more]
YELP Inc (NYSE:YELP) is forming A bearish daily and weekly chart formation. There is major daily chart resistance around $50.50 if the stock bounces during this options expiration week (Friday). The downside in this chart is for a move to the $37.00 level.
As you all know, oil prices have plunged lower since June 2014. Many so-called experts such as T. Boone Pickens are predicting oil prices will go back to $100.00 a barrel. Below I will give you three reasons why oil prices will not trade back above $77.00 in the next year and possibly longer.
1. The U.S. Dollar has officially broken out to the upside on the charts and this will keep oil prices in check for a very long time. You see, oil around the world is traded in U.S. Dollars. The U.S. Dollar is considered to be the world's reserve currency. So if you live in Japan and want to buy a barrel of oil you need to convert Japanese Yen into U.S. Dollars before you can buy that barrel of crude. Traders should note that as long as the U.S Dollar remains strong crude prices will remain weak. Just look at the chart below and you will easily see the inverse relationship between the price of crude and the rise in the U.S. Dollar.
2. Other central banks will continue to devalue their currencies for the next couple of years. This stimulus act by the central banks around the world such as the Europe Central Bank(ECB) and the Bank of Japan(BOJ) will help to strengthen the U.S Dollar for years to come. Basically, the U.S. Dollar is strengthening because of all money printing by other central banks. Once again, a strong U.S. Dollar means a weaker price in crude.
3. Many countries including China and the United States have vowed to promote solar and other alternative energy sources. It is easy to see how many people are now driving hybrid and electric cars already. Solar and alternative energy technology continues to improve for commercial and residential use and this should cause the use of fossil fuels to decline. Many countries such as the United States, and Canada have unlimited supplies of natural gas which could also cause put pressure on oil prices for years to come.