This Builder is About to Double its 33% Loss

Hovnanian Enterprises (HOV – NYSE)

Wednesday, September 04, 2013

Syria may be hogging all the headlines, but there are pressing issues right now that traders need to pay attention to. In particular, it’s time to start looking at earnings again.

According to Earnings Scout’s Nick Raich: “While we expected second-half ... earnings season to be less positive than the first half, we are disappointed that the improvement in earnings guidance trends recorded earlier in earnings season is now gone. By no means are we suggesting this has been a disastrous earnings season. However, it is no longer a very good one, either... We believe a near-term correction in equity prices is justified by the recent decelerating earnings and economic trends."

With that warning in mind, I scanned the calendar for the next few days, and noted that NJ-based home builder Hovnanian Enterprises (HOV – NYSE) announces on September 9th.

I also found out that someone is putting on a large bet on HOV taking a plunge. OptionMONSTER is reporting the sudden purchase of 4,522 January 2015 3 puts for the ask price of $0.45.

While there is always the possibility that someone is hedging a long-stock position, our charts indicate that this is more likely a straightforward downside play.

HOV 090413

Bottarelli Research Tip: HOV’s chart is a catalogue of sell signals. Back in January, and again in June we saw 3x Sell Signal Stacks. In July we got a Death Cross. And highs have been collapsing all summer, creating the left wing of a Butterfly Sell Signal. The butterfly’s right wing will come when price breaks down through support at the 38.2% retracement marker at $4.93, and doubles HOV’s year-long losses.

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