The Trannies look like death warmed over, down another 1.36 2.3%.

Dow Transports, 2 Year
click for larger chart


Note that since we last looked at them, they have started a new leg down.

Category: Economy, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

49 Responses to “Trannies Begin New Leg Down”

  1. Rdub9000 says:

    Trannies are scary in general, regardless of if they have their legs up or down….

  2. Michael C. says:

    How about this on the housing market by Robert Toll:

    “It appears that the current housing slowdown … is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors…”

  3. Michael C. says:

    Sorry about all those posts. My connection was lagged, and I pressed the post button more times than I should have. Please delete. Thanks.

  4. Ned says:

    It Tolls for thee….

  5. glenn says:

    Michael C.,

    Wow, talk about Toll being in denial and/or clueless. So did he say what he thinks precipitated the downturn?

  6. Craig H says:

    That was some pathetic move off the 11am buy proggies – everything gone and it isn’t even 2pm yet.

    I think the bulls are getting spent. Still, I think the market won’t tank until after the options expiration in a week and a half.

  7. Mark says:

    “Wow, talk about Toll being in denial and/or clueless. So did he say what he thinks precipitated the downturn?

    Posted by: glenn | Aug 9, 2006 1:23:54 PM”


  8. Craig H says:

    The most important thing to take away from the TOL confession is the part about walking away from options and having to write down the assets.

    This is key because it means: THEY WILL BE LOWERING THEIR BOOK VALUE.

    Foolish bargain hunters are looking at the homies and thinking, “Hey, I found a stock trading at book value. What a bargain I’ve found! I’m a freakin’ genius!”


    The book values on the homies are inflated with overpriced land and options that costs them money in interest on their loans and in property taxes – and they can’t unload it for what they paid for it.

    They’ll have to mark it down on their books.

    I expect the homies to trade down to 50-70% of what they currently say are their book values. That’s what happened in the last big housing crash. That means there’s another 30-50% downside to the stocks, which would take them to their 2002 price ranges.

    Then there are the ones that could go Tango Uniform, like DHOM. Looks like it’s already being priced for a funeral.

  9. Mark says:


    So 8/22 TOL gets to begin the public write down process. I wonder if everyone will begin to see it then? Nah. Still hopin’ for that cushy pillow to land on.

  10. Alaskan Pete says:

    Craig, they’re not even trading at book yet but around 1.3x (at least the ones I’m tracking including TOL). Your larger point is spot-on.

  11. BDG123 says:

    Expect book value to drop.

  12. Mark says:


    Where have you been?

    As to your point, EXACTLY. I am polling my contacts to see how stupid people were with land inventories. It’s one thing writing off option money. It’s a couple magnitudes larger when you have to take land values and slash them by 50%.

  13. BDG123 says:

    Are you proposing courtship? lol. I hack away on my own blog now until I bore of it as I did with my last blog. Plus, I’m much more busy at work.

    Florida real estate is destined to drop significantly. St Joe’s, symbol JOE, one of if not the largest land holder in FLA, is already down 40%. Some markets have just reached the tipping point of going YOY negative on the pricing comps for homes.

  14. Bynocerus says:

    The biggest tipoff for me on the weakness of the market is the number of stocks that have passed my buy parameters. Currently, that number is 5. At the end of December, that number was thirty, and in 2002 it was in the 100s. The fact that I can only buy small cap value stocks, not to mention that there are only five, was one of my best cues to take that short position Friday.

  15. Robert Cote says:

    From the Arizona Republic this morning: “Home builders went on a buying spree last year when a record $7.7 billion was spent on residential land across the [Phoenix] metropolitan area. Instead of buying land now, some home builders are trying to sell sites to other builders or are even walking away from deposits on big parcels.

    Craig H has the pulse. That raw land was purchased on margin or with options. Taxes will run $77m per year for each 1% taxation rate for metro Phoenix alone. The options will expire worthless. The comercial lending rates for even the best HBs for raw land has got to astronomical. This will resolve very badly for the HB stocks. They drank their own kool-aid.

  16. DavidB says:

    “Wow, talk about Toll being in denial and/or clueless. So did he say what he thinks precipitated the downturn?

    Posted by: glenn | Aug 9, 2006 1:23:54 PM”


    Once upon a time we called that the free market. People have had their market hand fed to them by the fed for so long I’ll bet they don’t even recognize what a free market looks like any more.

    I’m picturing grown adults looking like kids around a campfire with ghost story type eyes as we begin to educate them about how a big bad scary free market works. “You mean we have to think for ourselves?!” oooooh! Spooooky!

  17. Bynocerus says:

    Also, you know it has to be an ugly day when there’s no trolling from Johnny Damon and The Brown Shirt (SS. Honestly, who would take the handle of SS? )

  18. Bob A says:

    and “walking away” is what we’re likely to be seeing before long among homeowners in many places who find they are underwater and diving deeper on value/purchaseprice and paying twice as much in interest as they could rent the same house for.

  19. T says:

    It’s not as easy to walk away these days as in the past — many home mortgages are now no longer “no-recourse” loans that you can walk on.

  20. Bob A says:

    There are a lot of recent homebuyers out there who have basically no assets but their home. They face bankruptcy and renting for several years for the tradeoff of hundreds if not thousands per month in savings of interest/rent. The same logic they used to finance vacations and hottubs with refinancing will tell them renting is the way to go.

  21. Mark says:


    Bookmarked it. (I was hoping it was that trader porn site.) :)

  22. RW says:

    Hadn’t thought of the “non-recourse” angle WRT mortgages, I’d only been thinking of the impact of walk-aways and foreclosures on the housing market itself. The combination of full-recourse mortgages and the revised bankruptcy laws could mean wider bad news all around; e.g., people forced to sell other assets. Any idea of how many non “non-recourse” (sorry for the double negative) mortgages or HELOCs are out there?

  23. Mark says:


    Need another strike through in your first sentence to this article. Make that 2.9%!

  24. whipsaw says:

    per Bynocerus:
    “Also, you know it has to be an ugly day when there’s no trolling from Johnny Damon and The Brown Shirt (SS. Honestly, who would take the handle of SS? )”

    Maybe they’ve just been busy loading up on AAPL again? Buy on the dips! 8-]

  25. Craig H says:

    “Craig, they’re not even trading at book yet but around 1.3x (at least the ones I’m tracking including TOL). Your larger point is spot-on.”

    Well, they’re in the neighborhood, Pete. Plus they had a bounce off the short squeeze the last two weeks that lifted them a bit. That I think was just the hedgies pushing out the weak retail shorts so they could ultimately grab their short positions before the next leg down.

    One other thing we have to consider is that the public builders represent only a portion of all the companies out there. There are a lot of private builders in dire straits who will be dumping land and home inventory onto the market. To say nothing of all the speculators.

    What we see reported on Wall Street is a fraction of the pain on Main Street.

  26. Alaskan Pete says:

    “Then there are the ones that could go Tango Uniform”

    Tits up? I think WCI is a candidate. They are very heavily exposed to the Florida condo market, building lots of towers, as well as being exposed to Naples which is supposed to be the single most overvalued market in the US. The only thing keeping me out of that one is the huge short interest (>35%) and they’re at about 0.6x book so a buyout is always possible. I’d give them about a year before they’re delisted and bankrupt if not bought. But somebody else can play with that one, I missed my chance about 4 months ago when doing the initial research on them.

  27. WCI — now THATS a downtrend!

  28. DavidB says:

    The combination of full-recourse mortgages and the revised bankruptcy laws could mean wider bad news all around

    You’d almost think they planned it that way!

    Shifting from a nation of debt slaves to a nation of serfs

  29. ss says:

    You girls crack me up. I assume/hope your short positions are growing with your mouths.

    Reach around and pat yourselves on the back. The end is nigh! lol

  30. Bynoceros says:

    SS is obviously operating under the impression that if you post something seventy-four times it makes it true.

    Actually, most of us are very aware of just how nasty the market can be. What we will not brook, however, are trolls who make inflammatory comments without any track record to back it up. Not to mention that your two calls so far have sucked ass.

    I’ve made some suck ass calls too this year (two to be exact), but I’ve owned up to them. Still waiting for that mea culpa on AAPL from you.

  31. Kevin says:

    Are we still expecting a bit of rally this month and maybe into September before things really head south?
    Or has the downward move already started? I could see some back and forth for a while, but the S&P seems unable to get beyond 1282.

  32. S says:


    CTX wrote off land/option value with it’s June quarter. As did PHM. As did WCI. As did many of the others. And since everybody on the Street had been talking about the potential for impairments of land values since January, nobody was caught by surprise.

    Will there be more writedowns in future periods? Probably. I’ve found that one-time restructuring events usually aren’t. They have a way of becoming a SERIES of one-time restructuring events. That’s one reason why in the valuation framework I’ve outlined on here I sensitize ’07 consensus estimates by cutting them in half.

    IMO, what did take people by surprise was the magnitude of the decline in contracts at TOL. When Goldman initiated coverage on the group in November, they anticipated the industry would experience a gradual 15% decline in new home starts from peak to trough. Wachovia expected 20% across the industry.

    So the 45% decline in contracts is worse than anything I’ve read out of the sell side and is what probably caused the mark down in the stocks more than anything, IMO.

    The BAC analyst is probably the most pessimistic homebuilder analyst who publishes, and even after today he still has TOL earning $2.25 next year. Using his numbers, TOL trades at a whisker more than projected 2007 book value.

  33. Mark says:

    CraigH/Byno/Alaskan Pete-

    The next round of fright for the housing market is when the majority of ARM resets combines with the new OCC rules that take away all those, um, “exotic” mortgages. New rules come out late summer, September I believe.

    And oh, AAPL down another 1.8% today for all you “bargain hunters”.

  34. joe says:

    “We continue to be surprised by how many folks think that the market will soar as soon as the Fed is finished. Of course, the thinking is based on recent memory – e.g., the 1994-1995 Fed cycle, when equities managed to stage a strong rally that actually began slightly before the end of the tightening cycle.”

  35. Mark says:

    Anyone care to give me insight on this (Minyanville)?:

    “Tone last parting Shot – John Succo- 11:54 AM

    TICKS (taking offers on stocks) has hit +1000 six times today already. They even made it to 1300 once, a level I have never seen before.
    I think I saw TICKS reach 1000 a few times in the 80′s.
    I am becoming more convinced by things like this that part of our government’s approach to the economy and credit is to directly intervene into the markets. They understand that part of high liquidity is high asset prices.
    If this is true it of course will fail eventually for markets are a force that ultimately cannot be controlled”

    Anyone else observing these kinds of TICK today?

  36. babycondor says:

    Mark, could you explain briefly what TICKS is and how it would indicate government intervening in the markets?

  37. Craig H says:


    Yup. The write-down process is gradual. First come the least desirable options, then the more desirable ones, and finally comes the land. At some point the street will get ahead of the builders in the price markdowns, such as they have anticipating serious trouble with DHOM and WCI. Then there are the general market selloffs when longs are in capitulation mode and just want to get out at any price.


    IMO if there’s to be a rally this month, I think it could be next week going into options. For what it’s worth, Charles Nenner said he thought the market would bottom at the end of this week then have a slight upside bias into the end of the month. Sounds to me like he thinks we stay in the range, then exit to the downside after August.

    P.S. – I have this wacky theory about CSCO. I think they’re channel stuffing one quarter, reporting good numbers. Then allowing distributors to work off the inventory the next quarter, reporting weak numbers. Lather, rinse, repeat as long as it keeps the stock out of the abyss under $17. I know, it’s nuts… but when was the last time CSCO put together two good back-to-back quarters?

  38. Robert Cote says:

    “SS is obviously operating under the impression that if you post something seventy-four times it makes it true.”

    Why not the Fed raised rates 17 times to fight inflation and then paused so it must be true that they capped inflation.

  39. Alaskan Pete says:

    Babycondor: TICK is a market internals measure that basically looks at how many transactions are “lifting the ask” vs how many are “hitting the bid”…in otherwords how many trades are occuring where the buyer is “actively” buying or selling.

    The TICK itself is a summation of the issues ticking higher minus the issues ticking lower. Think of it as an extremely short term A/D measure.

    I personally think the TICK spike of late just show the huge effects of program trading kicking in all at once.

  40. whipsaw says:

    per Mark:
    “Anyone care to give me insight on this (Minyanville)?:”

    Yeah I saw that and wasn’t sure exactly what Succo meant, but I think he was probably talking about futures or at least what was happening on a very short term intraday chart. Investopedia is your friend:

    “Since total volume may not be immediately available on the futures market, even as an intraday estimate, tick volume is used as a substitute. Tick volume is the number of changes in price regardless of volume that occur during any given time interval. The reason why tick volume relates to actual volume is that, as markets become more active, prices change back and forth more often.

    For example, for a chart of 30-minute volume patterns, the tick volume of each interval (the number of ticks during the 30-minute period) can be compared to the first 30 minutes of the day and recorded as a percentage of the initial tick volume. This establishes a baseline volume for the day to which all subsequent ticks can be related.”

  41. BDG123 says:

    Tick data hits 1000 time and time and time again. Only in efforts of stupidity but it is not an uncommon occurence. While we had some strong tick readings around 11, it quicky abated. Minyanville is a little off on their conclusions. By factors.

  42. whipsaw says:

    per Alaskan Pete:

    “The TICK itself is a summation of the issues ticking higher minus the issues ticking lower. Think of it as an extremely short term A/D measure.”

    ah, interesting- thanks for the info.

  43. tjofpa says:

    According to the the aggregate stocks of the $TRAN have a yield of 1.01% and a PE of 35… as of today’s close.

  44. rebound says:


    You quoted, “The combination of full-recourse mortgages and the revised bankruptcy laws could mean wider bad news all around”

    Given that bankruptcy may no longer be an option, people may scramble for a longer period of time while trying to tread water … before a massive personal finance train wreck occurs.

    Therefore there may be a longer than usual delay for symptoms of a recession to be become visible this time.

    One could make a reasonable argument that the prior set of bankruptcy laws, in some sort of American tradition, enabled risk taking which enabled innovation and business development. Being able to start a small business and fail without utterly catastrophic consequences may be a small frictional cost when taking into account the big picture of an entire economy.

    Maybe the bankruptcy reforms are penny wise and pound foolish.

  45. colin says:

    I have a question… wasn’t there a double top in late 2004, early 2005?


    First top: Dec 28th, 2004
    Value: 3811 (52 week high)

    Middle bottom: Jan 24th, 2005
    Value: 3454

    Second top: March 7th, 2005
    Value: 3876

    69 days between tops. The tops are within 2% of each other. The drop from first top to middle bottom was 9%.

    So we have been waiting for the huge downturn from the early 2005 double top for so long that we got another double top almost 1200 points higher????

    It looks like if you had held on through the early 2005 double top (after realizing it was a double top) and held it for another year you would have done quite well.
    The criteria were:

    What happens after the Transport double tops? Birinyi looks into that question, using these critieria:

    • First peak is a new 52-week high
    • Correction between first and second peak is at least 5%
    • Duration between first and second peak is less than 120 days
    • Second peak is within 2% (Plus or Minus) of first peak

  46. whipsaw says:


    What you are describing sounds like a good example of why double tops (and double bottoms) don’t mean too much without other confirmation. All they reflect is the levels of resistance (or support) that exist within that time frame. They occur regularly on daily charts and are much more significant when they appear on weekly or monthly charts, but still need to be combined with something else like breaking above or below a significant moving average or or out of a trend channel before it really makes sense to roll the dice for money.

    Put another way, double tops or bottoms can mean that something is just range trading and there’s no telling when that will evolve into a a breakout. As patterns go, these are a lot less useful than island tops/bottoms or H&S or Reverse H&S instances are or even triple tops/bottoms.

    And, as always, TA is just a framework for analysis, not a crystal ball. It has a lot of weaknesses, but at least it doesn’t take a P/E ratio and extend it into infinity using linear regression to create a “target” like Fundamentalism does (and I won’t even get into the margin compression blind spot in that).

  47. Memories says:

    Before we start passing the hat for Mr. Toll please take a look at his sell timing in his own shares last summer and fall and check out the prices he got for them and the total cash in. Watch what they do, do not listen to what they say…how can you tell when a CEO is lying? His lips are moving! LOL

  48. ss says:



    I’m not a day trader, sitting in my condo in my PJ’s looking to scalp $50 on a trade. I manage portfolios.
    You pitiful attack on my purchase of AAPL shows how strong your strong self worth is.

  49. colin says:

    Ah. Thanks, whipsaw. (I don’t have an opinion one way or another on TA or Fundamental investing. Just a newbie wondering aloud.)