Toll Brothers Bottomed Out.....NOT – Part II
Last month, I talked about Toll Brothers beating estimates, how the conference call was upbeat and how the stock price rallied, but why I felt it was a great short.
Toll Brothers reported net income of $193.3 million, or $1.26 a share, for the fiscal third-quarter ending July 31, topping analyst estimate of $1.03 a share.
Our double-digit growth in revenues, contracts and backlog and our strong earnings reflect the health of the new home industry in general and our unique position in the luxury market.
Toll Brothers rose as much as 13% yesterday, but I’m about to explain to you why it’s a great short opportunity.
I’m a swing/position/macro trader at heart. The price action on Toll Brothers represents what’s going on in the Bigger Picture. If you have been watching the financial news lately…like the last two days, it’s been all about interest rates rising. The 10-year Treasury note yield is above 3.2%, its highest level since 2011. The recent run up in interest rates, translates to higher mortgage rates, which translates to less home building and buying demand.
The SPDR S&P Homebuilders ETF XHB, set a record yesterday, a losing streak for the 13 straight session. The previous record losing streak was eight sessions, which occurred first during the eight-day stretch ending July 18, 2006, as the housing crisis was just getting started. The ETF is now down more than 15% year to date. My 1st target is a little more than $1 away, once this level is breached the chart suggest price will head down to the monthly demand zone at $29.
Also, ITB also hit my first target at $34. The chart suggests ITB will fall to the $26 level next.
Overall, the Dam (the Markets) are starting to show cracks, there some moisture on the dam walls, even some slight leaks. Before the Dam breaks, make sure you move your house (401k, IRA, trading accounts, etc) to higher grounds beforehand.
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by rollandthomas
It's still overpriced. Value found in gold miners ABX and NEM.
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Rates this week were scary and I think it should remind is that moves on the way down can occur much quicker than the way up given the herd mentality of the markets. Higher ground indeed!
I think once rates get to 3.5% on the 10 yr, then things will get really interesting in the Markets.