Monday, March 17, 2008

A Homebulder Stock That Has Confirmed it's Bottom

As we have been talking about the premise that both the NASDAQ and the S&P 500 have confirmed their transformation from bull to bear markets, it is important to remember that this certainly does not mean there will be no opportunities on the long side of the market.

As this bear market moves forward, there will be periods of counter trend rallies that typically can be very lucrative on the long side because they travel large distances higher in a very short period of time. This allows us to garner some fairly beefed up investment returns, but tie our capital up for a short period of time.

With this preface behind us, I wanted to bring to light a fairly aggressive play, but also one that has the probability edge on our side.

There are 3 very big positives to note on this weekly chart.

1. The price retraced 62% of the most recent advance and bounced.
2. The price is finding solid support on a previous down trending line. (Mega-Bullish)
3. The entire structure of this monster decline has completed a very reliable symmetrical pattern.

While I emphasise that this is a rather aggressive play, I should point out that through the use of risk management, we can turn a risk event into a conservative venture simply by limiting our risk.

Once we get further confirmation of the general market putting into place an intermediate term low, I will be looking at some call options on this particular issue.

Stay Tuned!!

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