Buy LPX versus Sell-Short HD

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I think this picture speaks a thousand words all by itself.

LPX makes plywood, the essential ingredient in building houses and additions.

These two usually bounce along to the beat of the same drummer - the health of the housing market.

You can see quite a divergence in the two of them here and it appears that LPX is finding it a bit hard to go any lower.

It also appears that HD             is having trouble making further headway to the upside, or at least has run out of enthusiastic buyers up here.

If you take a look at pure valuation alone, HD             has only earned 4% on its current market valuation in the past year, so in my mind I view that as quite high and it has little room for error. Despite the fact that HD             is buying back stock and has decent guidance on its forecasts from inside the company.

I believe I will risk only 5% on this trade in order to make 10% in the next 30 days.

Tim 3:41 PM EST, Monday, June 10, 2013
HD             77.88 -0.85 on the day
LPX 16.75 last.

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timwest PRO
3 years ago
LBN2013 is July lumber futures
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