Straddling the War, Markets, Housing and Frida (HD)

“May you live in the most interesting of times…”

– Ancient Chinese curse –

 

The Chinese were certainly on to something.

 

We’re alive today, friends, at a time of impending tectonic changes in the world. For most, it’s a foregone conclusion that the world we inhabit, let alone the one we passed through a few decades ago, will be nothing like the world we leave our children.

 

In fact, the revolution that’s taking place in our lifetimes will engender changes in the way the world operates that are absolutely unknown to all but those few of us endowed with a gawd-given and finely honed prophetic sense.

 

Beard Guy

Now, the gift of prophecy, of course, is also a great responsibility, as our mentors advised us in our youth. So forgive us if we appear at times to be coy or coquettish. It’s not our intention. And it’s not because we’re deliberately trying to hide things. Rather, the truth is sometimes just be too painful to bear. And it’s prudence that dictates our silence.

 

Speaking the Truth

 

You can imagine our relief, then, when just this week mainstream ‘news’ peddler CNN offered a story that was chock full of truths and what some might even consider prophetic-sounding factoids.

 

The article was called “How is this not World War III?,” was penned by one Frida Ghitis, and tells the story of a Balkans-like conflagration now unfolding in Syria – one which, like the First World War, could suck the entire planet into its vortex. We urge one and all to give it a once-over.

 

Bully for Frida!

 

I sent a personal invitation to the aforesaid bride of knowledge upon reading her work, imploring her to join our weekly confabs here at Normandy, in which we discuss everything from global copper consumption to origami paper-cut prevention – and everything in between. Why, just last week it was the waxed totem poles of the Pacific Northwest Chinook Indians that reached our conference table. Damned fascinating!

 

In any event, Ms. Ghitis has yet to respond to our offer, but we hold out hope that the chance to play snooker and throw back a few tumblers of aged Kentucky bourbon with former presidents, captains of industry and a few elderly boxing champs, will eventually entice the intrepid missy to join the funover, and may even create an opportunity for some Caribbean smoked porpoise and a little laryngeal shiatsu.

 

Scary guy

The topic is war, friends. And the importance of it for markets can’t be underestimated.

 

War Moves Markets

 

On the one hand, war energizes people, gives them something to believe in – whether it’s the flag, or some higher moral cause, or just some hackneyed dose of government propaganda. Whatever the case, when people believe in something, they’re more driven. Their lives take on new meaning. They work harder and spend more. Their commitment levels rise, and they’re imbued with confidence. They share something greater than the weather to discuss at the water cooler.

 

At least that’s the way Americans have typically reacted when the bullets start to fly and the rocket’s red glare burns bright before them.

 

And that’s good for markets.

 

More importantly, war is the ultimate cover – the distraction nonpareil for markets to hide behind. When the headlines are blazing about offensives and retreats and the front-page talk of the day is about air strikes and troop movements, you can be sure that the market will be stealthily climbing toward new highs and beyond.

 

Take it as axiomatic, good readers, that the market only blasts higher when no one is watching. And while the focus is on war, the so-called ‘wall of worry’ is as great and Chinese as any wall on the planet.

 

Economic News Constructive

 

Of course it helps when the economic backdrop is favorable.

 

In the last few weeks we’ve seen better than expected employment and housing data, both of which goosed the market substantially.

 

Here’s a chart of the most up-to-date Case/Shiller housing numbers, showing that we’ve nearly recovered to former all-time highs set in 2008.

 

Case Schiller

Note that the chart is of national average numbers, not the more popular twenty city or ten city figures that are widely quoted. We prefer the above numbers as they give a better rendering of what’s happening across the country, cutting out regional growth spurts and stalls that are far less meaningful.

 

We would quickly add that recent data from corporate giant and Dow component Home Depot (NYSE:HD) also supports the case for a broad based national recovery in the housing sector.

 

After their latest earnings report, which sent the stock soaring – up nine percent in just eight trading sessions – management reported that “regional sales growth gains are tracking in much closer sync to each other right now,” a development that speaks to the housing market rebound being more national than regional in nature.

 

And that, too, can only help markets.

 

The Home Depot Trade

 

With their shares up so quickly of late, we can’t pretend to be bullish on HD stock over the near term, though we do like their prospects for the long haul.

 

At this time, the chart for Home Depot speaks to a cooling off period in the offing, and we intend to generate some money from of it.

 

Look at the chart –

 

Technical Chart

The buying is very likely complete at this stage. HD has posted Q3 earnings and offered guidance for the coming year – there’s little left to entice new purchases.

 

That’s why we we’re selling a straddle.

 

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Options Trader Elite recommends you consider selling the at-the-money HD December 134 CALL and 134 PUT for $2.82 and $2.69 respectively. Total credit for the trade is $5.51.

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Upside breakeven is $139.51.

Downside breakeven is $128.49.

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Many happy returns,

 

Matt McAbby

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