Today, we initiated an investment into home builders. The purchase was made for only our most aggressive clients and was a relative move from the telecom sector. This industry has long been dead money, but we felt this was a good opportunity to initiate a purchase for a few reasons.
The relative strength (measuring one asset class against another) of home builders against S&P 500 has been in a 5 year down trend. However, this trend was recently broken as home builders have surged 40% in over a month a half. (The chart below shows the broken black trend line in the lower panel.) Due to the incredibly strong move, short term indicators were measuring overbought and we wanted to wait for a more favorable entry point. Today the index pulled back to the rising 50 day moving average, and we decided to take advantage of the selling pressure.
Additionally, a few of our independent research providers issued favorable outlooks for the home builders. The equity team at Ned Davis issued a buy rating on the space and Bank Credit Analyst upgraded the space to neutral, with additional positive comments. Generally speaking, the fundamentals for the housing sector remain depressed but there have been hints of stabilization in many areas. This highlights the speculative nature of this investment and was thus confined to our Ultra Aggressive policy.
