The tide seems to be shifting in the housing market, and there is bullishness on wall street. Short squeezes are occurring left and right, and we all are wondering how long the party will last. From what I can tell, today’s pullback is being bought, and we are at very low volatility ranges making bullish setups still the ones in favor. Where this is risk there is reward, and Hovnanian is a stock I like in a bullish environment. Yesterday, call option volume in the Feb $3 contract was 5,900, with the volume traded outpacing open interest by 4 to 1. That’s a very bullish commitment by some options speculator. Today the stock gapped down with the rest of the market but it’s steadily climbed back from that. Not all stocks have climbed back so it’s a good sign.

Stock data:
1. Short interest is at 29% (short squeeze candidate)
2. Sales Q/Q have been -3%, but EPS Q/Q has been +46%.
3. Financial data over the past several quarters has been dismal, but that’s to be expected given the housing market has done so poorly.

Technicals:
Looking at the 1 yr chart attached:
1. the downtrend that started in Jan 2011, and troughed in Oct, was reversed in early January, and confirmed when the ROC indicator broke out to a new high on Jan 9th.
2. The breakout has been supported by an increase in volume.
3. On balance volume has also shown confirmation of the move higher.
4. Peer group technicals have been strong. 6 month comparison performance: LEN +20%, DHI +17%, PHM +5%, HOV +4%. HOV could play a little catch up to the leaders (though it has risen the most on a % basis in the last 3 weeks.

Chart courtesy Finviz. Click to open larger.

Additional Image Provided by Terrence:

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