Monday, September 17, 2007

Fun Fantasy: Hovnanian

For a fun, lighthearted post, I'm going to make some far-fetched (bordering on ridiculous) speculations about the possibilities of movement in Hovnanian (HOV) share price in the next few days.

Wild Scenario 1:
Hovnanian trades flat in early trading tomorrow. At 2:30 tomorrow afternoon, the Fed announces that they are cutting interest rats by 50 basis points. Hovnanian is up 13% in the past two sessions and is still feeling the effects of the strong weekend sales. It immediately jumps 10%, along with the rest of the homebuilders, as well as the mortgage companies and entire financial industry in general. After this move to $12.50 or $13, shorts react to cover their positions to preserve gains from trades at $15, and the short squeeze propels the price higher. Hovnanian closes at $14, posting a 20% daily gain based on a chain reaction of good news and trading nuances.

Wild Scenerio 2:
The Fed keeps interest rates steady due to inflationary fears, disappointing the market. Hovnanian, having recently sold off lots of its inventory at a steep discount, falls back to $9 as the financial and homebuilding sectors crash.

Mild Scenerio 3:
The Fed cuts interest rates by 25 basis points, with language that implies that further cuts could cautiously be made in the future, depending on continuing economic circumstances. The market is flat, unimpressed by the cut but appeased by the wording.

DISCLAIMER: This was a fun little "what-if." But it is in NO WAY intended to be a realistic analysis of expectations of things to come. Invest, don't gamble. I'm in it for the long term. Don't take anything in this post as anything remotely resembling financial advice, recommendations, or analysis.

1 comment:

Student of the Stocks said...

I don't mean to pat my own back, (especially because I wasn't even sure enough in my own position to engage in any transaction that benefited from the cut), but my speculation about the rate cut and Hovnanian's response was incredibly accurate.

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