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Hovnanian Stock Pick: How Overreaction + Sentiment + Charts = Tremendous Profits

Hovnanian Stock Pick: How Overreaction + Sentiment + Charts = Tremendous Profits






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    Hovnanian Stock Pick: How Overreaction + Sentiment + Charts = Tremendous Profits Hovnanian Stock Pick: How Overreaction + Sentiment + Charts = Tremendous Profits Presentation Transcript

    • Hovnanian Stock Prediction Overreaction + Sentiment + Charts = Tremendous Profits Yoni Jacobs 8/23/2009 YoniJacobs@Yahoo.com
    • Would you be extremely upset at yourself if you missed an easy opportunity to make a 900% return on your investment? The Housing Bubble has created one of the biggest investment opportunities in the market’s history. It is specifically when sentiment is at the negative extreme that profits are most readily available to those who recognize the opportunity. The following presentation will: 1) Describe the stages of bubble formation, collapse, and recovery 2) Demonstrate how the housing bubble we have seen fits all the relevant criteria of a bubble 3) Prove the existence of opportunity for tremendous profits by explaining crowd behavior and market recovery 4) Providing charts and information that strongly suggest the accuracy of our predictions 5) Present the reader with a TREMENDOUS OPPORTUNITY FOR EXTREME PROFITS Bubbles share the same basic phases: 1) Increased profits are seen by few (Investor group #1). a. Fairly rapid growth/rise in prices follows. 2) Those who saw the successful few, follow in their footsteps in hopes of similar profits (Investor group #2). 3) Investor Group #2 sees profits as well, as prices continue to increase due to the continuous inflow of new investors. 4) With investors chasing rapidly-increasing prices in search of huge profits, a BUBBLE has formed. 5) At this point, the extremely positive outlook continues as prices continue to soar to unprecedented levels. 6) The bubble continues to expand, but prices are rising due to investors frantically chasing profits. a. Prices now reflect the extreme optimism and euphoria that hope the “Great Times” will continue. 7) But with millions of investors already invested, and with sentiment being overwhelmingly positive, there is not much room for growth. a. Growth cannot continue forever. Prices have skyrocketed to levels not consistent with the underlying fundamentals. b. In effect, prices reflect the investors’ overconfidence in chasing profits – “Panic Buying.” 8) With no one to keep this bubble expanding, and with prices reaching their peak, expectations are no longer met. Yoni Jacobs 2
    • a. The run-up can no longer continue – the last group of investors has chased the last available profits. 9) The market begins to see signs of weakness/prices are finally seen as extremely inflated. 10) Having already reached the peak, some investors begin taking profits, sending prices down. 11) Just as in the “up phase,” the few who acted first (before the rest of the crowd) came out ahead – this time saving their profits. 12) The Bubble has reached its capacity – prices are high, crowd sentiment is euphoric, and underlying fundamentals do not provide support. 13) New information begins to emerge, suggesting weakness and warning about the current fragile situation. 14) Again, just as in the “up phase” many investors chased profits in a panic state, they now race to protect their assets in a “panic selling spree.” 15) The Bubble has formed, expanded, reached its peak, burst, and is rapidly deflating. a. Investors are losing extraordinary amounts of money and community sentiment is plummeting. b. Panic selling continues, terrible news continues to surface about the weakened state of the underlying economy. 16) After much of the bad news has surfaced, and after most investors have fled by selling or staying away, a bottom is reached. a. Prices shot up, reached a peak, tumbled down, and are now at a level reflecting extreme fear, panic, and pessimism. 17) But just as prices were overly optimistic to an extreme at the peak, they are now overly pessimistic to an extreme at the bottom. a. With the bulk of the crowd predicting a bleak future, there are few (if any) who believe the worst is over. b. And with no one left to continue the downward cycle, expectations can only be exceeded from here on out. c. It will take a lot to convince the masses that the situation is turning back around. 18) The situation begins to improve, but the majority refuses to accept it because of the losses seen and the fear that continues to exist. 19) A very small minority of investors realizes a bottom has been reached and begins to invest again. 20) New information continues to point to a stabilization and recovery. 21) Investors’ confidence continues to increase, and more investors begin putting their money in again. 22) Just as in the “up phase” and the “panic selling spree,” where greed and fear created a panic in chasing profits and then, correspondingly, in protecting from losses, the “recovery phase” also sees a panic – this time a panic to catch the prices rising back to normal. 23) The extremely negative sentiment slowly turns more positive as a recovery is in place – and prices emerge from the abyss to begin a new cycle of growth 24) Increasing prices and the profits of a few profit chasing and greed by the crowd skyrocketing prices based on euphoria information surfaces suggesting the situation is not as bright as it seems investors begin to pull their money out continued negative news leads to panic selling market bottom is reached due to extremely negative sentiment and bleak future outlooks the few who see the bottom begin to invest again while the rest of the crowd needs further proof of a recovery new information suggests stabilization and recovery investors begin to pour their money back into the market prices recover, sentiment is positive again, the worst is far over those who saw the bottom and went against the crowd now see tremendous profits The market recovers, profits are seen, and the cycle begins again 25) Will you be one of the few who saw it coming? Yoni Jacobs 3
    • Hovnanian (HOV) – 2000 to 2009 1)Notice the RAPID run-up from $5/share to $70/share between 2001 and 2006 Bubble Peak 2)While the stock was skyrocketing, so was the housing bubble – forming in 2001 and bursting in late 2005/2006 3) The stock charts were presenting the exact behavior of the bubble Rapid Run-Up Yoni Jacobs 4
    • A “Head and Shoulders” pattern emerges, signaling frantic bubble behavior and an Head impending collapse Shoulder #1 those investors who jumped in during the middle stages of Shoulder #1 profit-chasing Head the extreme greed of those last Shoulder #2 investors who sought profits and missed the bubble’s rise Shoulder #2 the final, but futile push by investors to regain momentum and bring the stock back to its highs (before it ultimately collapsed) Yoni Jacobs 5
    • Volume (# of shares being traded) supports our observations about Bubble behavior: 1 Increased volume in early 2001 represents the initial investors and the beginning of the bubble 2 after a considerable run-up, the second wave of investors jump in 3 forming Shoulder #1, the third wave of investors join in (notice how the third wave involves more investors than the previous two waves) 5 2 3 4 1 4 Volume at the Head/Peak is lower than during the run-up. This signals the lack of new investors in the bubble and the upcoming decline 5 As the stock price sharply plummets and negative information surfaces, investor fear leads to panic selling (notice the higher volume and extreme negative reaction on the way down) Yoni Jacobs 6
    • • The Bubble formed, expanded, and burst • Volume supports our prediction of investor behavior • Prices are back to Pre-Bubble levels • Positive Momentum is much higher in 2009 than it was even at the peak of the bubble! • The Recovery is on its way 5 2 3 4 1 Yoni Jacobs 7
    • Following a 4 year decline, the stock price stabilizes at around $2 after hitting a low of 50 cents! In July, Hovnanian breaks the downtrend and begins the uptrend (backed by increased volume) Yoni Jacobs 8
    • Following a quick run-up, HOV stock takes a short break at around $4. A triangle pattern forms, and the price action breaks out of the pattern signaling a continued run-up to follow. As long as the price stays above the bottom of the triangle pattern, HOV stock can be expected to continue its recovery Yoni Jacobs 9
    • HOV has tremendous upside potential due to: 1) Chart patterns – a. a “Head and Shoulders” has been completed and is now signaling recovery b. the downtrend has been broken, supported by increased volume c. the positive momentum was recently higher than any time in the last 10 years! This divergence could be signaling a huge rally. 2) Short interest - a. The short interest in the stock (people betting against it) is a little under 30%! b. If any decent (not even necessarily “good”) news comes out, expectations will be exceeded and the stock could skyrocket following the short squeeze that would follow. In other words, once the short sellers start to panic, the price could soar. 3) % of stock owned by Insiders – a. 19% of stock is owned by insiders b. Represents confidence by the company’s employees 4) Sentiment – a. Sentiment has been extremely negative concerning the economy and housing market in general b. Sentiment has been so low that expectations are extremely low as well. We are already seeing the situation improving, but sentiment is still negative. In general, the crowd is usually behind the curve. c. Once investors begin to realize the market is doing better (not even “good”), stock prices will quickly rise. d. Hovnanian stock, specifically, has been brutally battered from $70 to 50 cents! Sentiment has been to its lows; things can only improve. Target Price (1 – 2 yrs): 1) $10 (150% profit) – due to: a. overall market recovery b. Housing market begins to recover 2) $20 (300% profit) – due to: a. Overall market recovery b. Housing market begins to recover Most Likely c. Short squeeze 3) $40 (900% profit) – due to: a. Overall market recovery b. Housing market recovery under way c. Short squeeze d. Extreme positive overreaction Yoni Jacobs 10