Now that my trade idea on Yelp, Inc. (YELP), which I posted last Thursday January 3rd (http://investorplace.com/247trader/more-upside-ahead-in-yelp-yelp/), has reached its profit target at $21.60 (a 7% gain), it’s time to look for the next high probability trade setup.
The housing/real estate space as a whole had a good run higher in 2012. For a basic overview/proxy we can look at the fairly well-diversified S&P homebuilders etf (XHB), which rose about 60% last year and about twice that off the 2011 bottom.
Real estate development firm St. Joe Company (JOE) along with the broader sector also rose sharply and by so doing broke a multi-year down-trend. Note the breakout past the red trend-line on the weekly chart.
After a 67% run off the June lows, St. Joe Company (JOE) started off 2013 with two signaling (bearish) candlesticks; a failure to close at the day’s high on January 2nd , followed by a bearish engulfing day (sell-off) on January 3rd.
These bearish candlesticks formed just as the stock had reached the important 61.80% Fibonacci retacement of the swing from the February 2011 highs down to the November 2011 lows.
While from a longer-term perspective the stock may well move higher still, the combination of the two bearish candlesticks and the Fibonacci retracement resistance line increase the odds of a near-term pullback. The biggest risk to the trade is that the rip-roaring start to January continues as funds have to chase the market higher without so much of a pause – much like what we saw in eraly 2012, and thus pulling St. Joe Company (JOE) with it. For this reason a stop at the highs from January 3rd near $23.60 to these eyes make sense.
Overall however, the home builder stocks as a group had a big year in 2012 and near-term may be due for a breather. The S&P homebuilders etf (XHB) too has flashed a couple of concerning signals from its daily candlesticks thus far in 2013 and any consolidation in the group as a whole should help St. Joe Company (JOE) move lower. I am interested in the next 5% lower with a price target near $21.80
