August 24, 2006
Remembering “Have the Homebuilders Peaked?”
It was almost exactly one year ago that I held a chat called Have the Homebuilders Peaked? which happened to have been expertly timed. A few days after that chat Kirk wrote an excellent post about his short position in Dominion Homes. He explained:
“I’m currently short Dominion Homes on the theory that if you can’t make big money in one of the largest booms in history, what are you going to do when the bubble is over? Those of us who saw the last bubble deflate remember that it wasn’t the Ciscos or the Intels of the world the fell the hardest, it was the weakest players in the sector like TheGlobe.coms or InfoSpaces.”
I bring all this up because I noticed DHOM on the new lows list today. I’ve posted two charts below that will interest trend followers. Dominion Homes started to underperform the S&P 500 way back in 2004 and had been sliding for many months before the stronger homebuilders, like Toll Brothers, peaked.
If you compare the performance of Dominion to Toll itself, the mid-2004 reversal in DHOM is even more stark. No one in his right mind was looking to get long DHOM in 2005, and the savvy traders were all short — this is the difference between smart and dumb money.
August 24th, 2006 at 9:58 pm
[…] Chairman Mao takes a walk down memory lane and points out the top he saw coming in the Home Builders. He also does a good job of illustrating the canary role that weak stocks play in a bubble. I noticed DHOM on the new lows list today. I’ve posted two charts below that will interest trend followers. Dominion Homes started to underperform the S&P 500 way back in 2004 and had been sliding for many months before the stronger homebuilders, like Toll Brothers, peaked. […]
August 24th, 2006 at 10:44 pm
The type of equity is mostly irrelevant. After a consolidation period, meaning, in my terms, only so high and no higher, prices tend to fall due to their own weight. I would tend to agree that the stocks of companies within a sector that are the weakest decline the most in a bear period for practically any industry or business category.
August 25th, 2006 at 5:59 am
What I really like about Kirk’s site are all the inspiring life lessons and sayings and mottos. I am always so uplifted and decide to clean my kitchen after visiting his site.
August 27th, 2006 at 9:04 pm
Home Builders will take quarterly “impairement write-offs” for the next 6-8 quarters. Watch their “off balance sheet” liabilities for more blood letting. 90% off their all-time high for this 1996-2005 should be the bottom … CA
August 27th, 2006 at 9:51 pm
cody: Your guess is as good as mine!
August 27th, 2006 at 10:53 pm
I’ve been taking a look at NEW, I know it is a REIT and i’ve read on your site in the past that they remain a good investment dispite market sentiment. What do you think? 18.5% Dividend..?
August 28th, 2006 at 9:46 am
Sleepy: I’ve never heard of NEW. Yes, I still like the REITs though it’s a much different thing to buy them here compared with back in 2000.