Street Chatter: Hurricane Rita's Impact on Housing

by Ed Stenson (estenson@sir-inc.com) 9/22/2005 3:30 PM


A daily feature available on SchaeffersResearch.com is "Street Chatter." Every day, we'll focus on three newsworthy stocks that are generating a lot of attention on Internet message boards. By digging into the stock's option activity and trading performance, we hope to shed some light on the securities. Appearing in today's Centex, KB Home, Pulte Homes.



Centex

CNN.com's headline read "Texas 'ready for the worst' from Rita" this morning, and our television screens in the office showed aerial views of stationary cars on the Texas throughways, as people tried to flee to safety. I cannot imagine what it must be like. I certainly cannot imagine what it must be like, after the storm has passed, to wonder what is left. Hurricane Rita's winds have dropped a little, but a Category 4 hurricane is still rather worrisome.

Across the country, companies of all kinds have been citing Hurricane Katrina as the reason for recent triumphs or disasters. Homebuilders in particular are in the spotlight, and I've taken three of them as my subjects today. It's important to keep a clear head. While rebuilding homes in and around New Orleans is a priority, the only homebuilders who can really help are those that operate in the region. Suggestions from realtors that demand for homes nationally will increase sharply in the aftermath of Katrina, sound a little bit silly.

So, just who is out there to help? Centex (CTX: View sentiment for CTXsentiment, chart, options) is based in Dallas, Texas, and has 55 years of experience behind it. The company builds in Texas, Florida and Georgia, amongst many other states, but not in Louisiana, Mississippi or Alabama, according to its Website.

When Katrina hit on August 29, CTX was rebounding from the support of its 160-day moving average. By September 12, it had gained 9.2 percent and topped out at its 80-day moving average. During the same time period, the S&P 500 Index (SPX) added 3.4 percent.




For the past three days, the stock has tested the 160-day trendline again, pulling clear of it but then falling back, and it's a little hard to guess how this story will end today. My colleague Nick Perry was quoted on the Dow Jones Newswires this morning. "Technically, the bounce in housing seems somewhat anemic," he commented.

Perhaps not coincidentally, the Philadelphia Housing Sector Index (HGX: View sentiment for HGXsentiment, chart, options) is also sitting on its 160-day moving average today.




Zooming out a little, the weekly picture for CTX shows how the stock relied on the 80-week moving average a couple of times in 2004, but then pulled clear, flying solo all the way to a peak that almost touched 80. The 160-day trendline has been far below for a long, long time.




Let's take a look at the sentiment. We regularly track three areas:

  • Analyst ratings, to gauge Street sentiment
  • Equities sentiment, in the form of short selling
  • Options sentiment, in the form of put/call ratios and trends, and peak open interest

From Zacks I see that 13 analysts rate the stock, awarding:

  • 4 "strong buys"
  • 2 "buys"
  • 6 "holds"
  • 1 "sell"
  • 0 "strong sells"

There is a deal of optimism here, but remember that those cautious "hold" ratings are far from neutral, and leave room for upgrades if the stock continues in its current uptrend. From a contrarian perspective, this is good news.

Equities investors have sold about 7.9 million CTX shares short, amounting to more than six percent of the company's float. The short-interest ratio, which measures how long it would take to buy back all the shorted shares at current average trading volumes, is 4.5 days to cover. We monitor short interest because sometimes sudden good news comes along and pushes a stock's price up sharply. This might shake out some of the short sellers, who suddenly see that it will cost more money to buy their stocks back than they tucked under the mattress when they originally sold the positions. If these turncoat short sellers suddenly transform into buyers, they can push the stock price yet higher and perhaps provoke further short covering. We usually take note when the short-interest ratio passes five, so CTX is not currently a prime candidate for a short-covering rally. I see that short interest fell almost five percent in August but remained almost unchanged in September.

Finally, the Schaeffer's put/call open interest ratio (SOIR) today for CTX is 0.93, indicating that puts and calls are more or less equally popular in the closest three calendar months. This figure is lower than 71 percent of readings taken during the past year, indicating optimism. The SOIR has shown little movement for the past two months, suggesting that the options crowd is content to leave things as they stand.




Remember that puts, if present in sufficiently large numbers, can lend options-related support if the stock price is above the strike price of the put. Similarly, calls can lend options-related resistance if their strike is above the equity's price. When the markets opened for trading, the options configuration for CTX for October looked like this:




CTX has a wall of calls at the 70 strike, with plentiful puts at the 60 strike. In the short term, I think the 70 level might pose a challenge for the stock. There appears to be support at 64, and if that give way, the next stop might be 60.




The stock earns itself a Schaeffer's Equity Scorecard reading of 4.5 out of 10 suggesting, by a small margin, that the downside is the more attractive direction.

Today's Most Popular Stories




Featured Companies



Receive FREE access to Schaeffer’s
Sentiment Spring 2009
premier online options magazine!



Partner Center

tribal fussion