Sometimes the best trade is the most obvious trade; and for us that is the "short housing" trade, or more succinctly...short the homebuilders. Interest rates moved sharply higher this week on the short-end as well as the long-end of the curve, and ht prospects are good for a continuation of this move. Thus, there is a fundamental component to the trade.
As the chart shows, the uptrend was clearly violated, with a "head & shoulders" topping pattern still under development. If $HGX breaks 235 – and we think this is a "good bet" given the 50-week moving average is rolling over with prices headed lower through it – then much lower target projections are ahead. Perhaps a loss on the order of another -25% from current levels; the risk is to a move above 275 or -7%. We like the risk-reward...and are involved in the trade.
