Yesterday’s meek rebound was not the kind of rally to inspire confidence. Even so, we’re inclined to give the bull the benefit of the doubt until such time as the implications of Tuesday’s avalanche are corroborated by certain technical signs mentioned in my commentary yesterday. The commentary was itself inspired by a chart of homebuilder DHI Horton whose significance welled up in me like a bilious burp:

Notice how, until about a month ago, the stock had been spasming higher since July, when even the most factually impaired, deranged bulls were beginning to concede there was a problem in the housing sector. In retrospect, we can infer that the rally occurred because many investors were convinced that housing had bottomed – and never mind the mountain of statistical evidence to the contrary.

Timely Heads-Up

We dissed the rally the whole way up, and when it finally came time to short the stock, we settled on a Hidden Pivot target at 31.35 as the place to lay ‘em out. At the time, Horton shares had rebounded to around $28 and were therefore still a few dollars shy of the target:. Here is the specific recommendation, from the January 23 edition of Rick’s Picks:

“A Hidden Pivot not far above, at 31.35, has the potential to prick this bloated gas-bag. We'll attempt to short the stock if and when it gets near the target, but you can make your own preparations if a put-buying strategy is not your cup of tea. Otherwise, stay tuned for further details, which would be posted under Intraday Notes.”

The Hindenburg of Homebuilders

So why does the above chart leave me feeling bilious? Simply because Horton’s eventual top was at 31.13, a chain-jerking 22 cents shy of our target. And there we sat, at 31.35, waiting for an opportunity to short the Hindenburg that never quite materialized. The lesson here is that, no matter how confident we are in a price objective, we cannot afford to hold out for that last dime when opportunity approaches. In fact, if a major trend is about to reverse, it will often fail to reach its Hidden Pivot target. That is a possibility we will guard against vigilantly with respect to the Dow Industrials. The blue chip average’s recent high at 12796 fell about 2% short of a target at 13045 that has proved its worth to us many times before, but we should not allow ourselves be lulled into taking it for granted. 

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Papua  Seminar

Papua!?  I just wanted to see if you were paying attention. In fact, I’ve received numerous requests to offer a Hidden Pivot seminar in Boca Raton, Florida, though not in New Guinea, and will do so if there is sufficient interest. Please let me know if you would be seriously interested in attending a Florida class.  The two-day session would be held sometime in the Spring of 2007. To get on my mailing list, drop me an e-mail, including your contact information. The cost would be $1,500 USD.