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Playing Housing Bottom

With housing starts out on Wednesday, how should you game the homebuilders?

Investors have a great deal of data to sift through as they attempt to develop a trading thesis.

Mortagage Delinquencies

The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That's up 58 percent from a year ago.

Homebuilder Sentiment

The National Association of Home Builders said Tuesday this month's housing market index stood unchanged, at 17 for the second month in a row. This key gauge of homebuilders' confidence reflects a cautious outlook from residential developers.

Home Depot Outlook

The top home improvement chain reported quarterly results that beat analysts' estimates, but made a forecast that suggested weaker results at the end of the year and said a recovery might not take hold until the second half of 2010. The cautious outlook sent its shares down over 3 percent.

With so many variables, how should you game the space?

I think the homebuilders are interesting, says Karen Finerman. But I only like those with strong balance sheets. I’d recommend long Pulte and Centex.

If you think there’s going to be a V-shaped recovery Karen’s trade works, explains Deutsche analyst Nishu Sood. Pulte and Centex hold a lot of land and they can bring it online quickly and capture market share if the economy takes a sharp turn for the better.

But if you expect it to be a drawn out recovery I’d look at the ‘lean and nimble names’ such as KB Home, MDC Holdings and Ryland .

And if you’re a professional trader, the homebuilders stocks have been range bound and anchored by book value, he adds. I think you can trade them from the top of the range to the bottom of the range but that’s for pros.



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Trader disclosure: On Nov. 17th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (POT), (NUE), (AAPL), (BAC), (EEM), (GE), (INTC); Finerman Owns (FLS); Finerman's Firm Owns (MSFT), (NOK), (PLCE), (TGT), (CBY), (BGC), (WMT); Finerman's Firm Owns (BKS) Puts ; Finerman's Firm Is Short (USO), (IJR), (MDY), (IWM), (UNG), (KFT); Finerman's Firm Owns (BAC) Preferred, (BAC), (BAC) Call Spreads; Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm Owns (FLS), Is Short (FLS) Calls; Finerman's Firm And Finerman Own (WFC) Preferred; Terranova Owns (POT), (SU), (AAPL), (GOOG); Terranova Owns Dec. Crude Oil . Futures; Terranova Owns Dec. Gold Futures; Terranova Owns Dec. Nat Gas Futures; Terranova Works For (VRTS) ; Najarian Owns (ANN) Call Spread; Najarian Owns (DTV) Calls; Najarian Owns (JRE) Calls; Najarian Owns (CLF) & (CLF) Calls ; Najarian Owns (AA) Call Spread; Najarian Owns (EXPE) Calls ; Najarian Owns (GE) Calls ; Najarian Owns (INTC) & (INTC) Calls ; Najarian Owns (LAZ) & short (LAZ) Calls ; Najarian Owns (MCD) Call Spread; Najarian Owns (QLOGIC); Najarian Owns (RIMM) Call Spread; Najarian Owns (YHOO) & (YHOO) Puts

For Nishu Sood
(TOL) Is an Investment Banking Client of Deutsche Bank
Deutsche Bank Owns (RYL)
(RYL) Is an Investment Banking Client of Deutsche Bank
Deutsche Bank Owns (PHM)
(PHM) Is an Investment Banking Client of Deutsche Bank
Deutsche Bank Owns (MTH)
(MTH) Is an Investment Banking Client of Deutsche Bank
Deutsche Bank Owns (MDC)
Deutsche Bank Owns (LEN)
(LEN) Is an Investment Banking Client of Deutsche Bank
Deutsche Bank Owns (KBH)
(KBH) Is an Investment Banking Client of Deutsche Bank

For Jeff Saut
Raymond James Owns (WMT)
Raymond James Received Compensation from (MO)
Raymong James Makes A Market in (AMSC)
Raymond James Received Compensation from (AIV)





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