Warning: Sell These Shares Now

We have two charts for you today.

The first is the mind-boggling 15% loss [yesterday] morning from hammer and saw giant Stanley Black & Decker (SWK – NYSE) on news that SWK is cutting its 2013 profit forecast from $5.40 — $5.65 to $4.90 — $5.00.

According to Chief Financial Officer Donald Allan…

We really believe the U.S. government sequestration and shutdown has had a modest impact in Q3 on us and will have a slightly more significant impact on us in Q4.

Here’s the odd part of [Wednesday’s] sell-off: SWK actually beat estimates with a better-than-expected 44% rise in third-quarter net profit!

Now, we have no doubt that traders are spooked by the damage done by Washington’s political games. But we suspect this is really about deeper economic fears bubbling just below the surface. Remember, the market was spiking and diving on fears of a deflating housing bubble long before this latest “crisis” in Washington went down.

And so, we present the chart you really should be looking at: iShares U.S. Home Construction ETF (ITB – NYSE) – the ETF that gangs together the country’s major home builders.

Bottarelli Research Tip: First up, you should note that the ITB broke its rising trend back in early summer. Now, it’s rolled over into a dangerous downward slope. Next, you should note that price put in a 3X Sell Signal Stack back in September (before Washington went nuts) very similar to the one that first broke the ETF in May. The follow-on loss after the May Stack was -23%. A similar drop now would see price drop as low as $18.23.

Featured Advertisement
[ hana-code-insert ] 'bottarelli-options' is not found

Source: Bottarelli Research