Is the Market Speculator Really Long a Homebuilder?

I've been very busy, so I haven't had a chance to update my trades. As stated in the comments section this morning, I unloaded a bunch of shorts and entered a few longs. I would like to add some more shorts on bounce.

My bias is still to the down side, but I don't want to give up the big gains I've already made. I am keeping a few shorts in case we go down more before we bounce.


A lot of you have e-mailed in shock over my long position in HOV (posted entry in comments section), a homebuilder. Todd S. asked a question is representative of most of the emails I received: WTF are you short a homie when you have been shorting the shit out of the sector over the past year?

Good question Todd. Fundamentally, and longer term, I still don't like the sector. I agree with most that credit and housing problems aren't going away any time soon. However, as a technician who lives and dies by trading accumulation and distribution patterns, I cannot ignore what is going on in the sector. Take a look at the HOV chart:



Key points:
1. Strong breakout over downtrend line and 50 day moving average.

2. Distribution pattern shows accumulation during run up, with strong volume on up days and low volume on pullback.

3. RSI divergence (see orange dotted line on price and RSI) shows strong relative momentum.

These three factors lead me to believe we have a short term reversal in play. I expect to see a retest of the recent high. Not sure if we'll get a breakout at the high, but retesting the high alone would give us a 30 percent gain.

Some have pointed out that I may have entered early. The 50 day moving average is at 7.63, so I do understand the criticism. Maybe I could have waited for more of a pullback. Normally I would. The reason I did not is that I am expecting a bit of a market bounce in the coming days. Lately homies have been leading the market bounces, so it makes sense to enter now. I have a decent risk to reward at 2:1.