zak mir – The House of the Rising Interest Rates

A few days I was back in what I regard as my natural habitat: The King’s Road, Chelsea, and noticed that the Chelsea Building Society was offering mortgages at 1.99% on 65% of the value of a home. So far, so good. But it reverts to 5.72% after the introductory period ends in October 2016. So all in all, an offer you can refuse!

There are at least a couple of points that stem from the Chelsea Building Society’s mortgage deals. It makes one think that the doubling of prices in the Royal Borough of Kensington & Chelsea over the past 5 years was probably not fuelled by the High Street banks, but almost certainly by shady tax evaders, recession refugees from PIIGS nations and the usual coterie of emerging markets money launderers.

But what we have seen this week is one of the strongest reminders from the stock market that the Prime London property boom which has trickled to other parts of the UK may not be sustainable. This is despite all the “supply and demand” arguments that have been doing the rounds – if all else fails quote “supply and demand” as a reason for a market continuing to rise, e.g. the precious metal, gold. Look what happened there…      

However, in defence of the boom, I would suggest that as the rise in prices has not been fuelled by the small time speculators on 100% mortgages and so perhaps, any setback may be gentle, and so maybe the same could be said for shares of leading house builders?

Technical Analysis

Barratt Developments (BDEV)

Nevertheless, it has to be admitted that in the case of the daily chart pattern of Barratt Developments (BDEV), the July/August double top turned out to be a double bull trap versus the May resistance at 349p. The view now is that although the shares are heading for the oversold RSI zone, it could very well be that the longs have not been punished enough just yet. The risk is that the uptrend line from February could give way to guide the stock back towards the 200-day moving average now at 266p over the next month. Those who are sceptical of this call may feel it is worth waiting on an end of day close back below the latest intraday low at 293p before taking the plunge on the short side.

Taylor Wimpey (TW.)

I was asked about Taylor Wimpey (TW.) just yesterday evening in front of a rather large audience, and it is rather fortunate that even though the trend here has been a strong and substantial one in recent months, it did appear that there was the risk of a setback. The type of setback I was looking for is a repeat of the June pullback which overshot the blue 50-day moving average then at 95p. The view now is that rather as in the case of the June price action we shall see the shares test the floor of the rising July 2012 price channel now at 93p, even if the overall uptrend re-asserts itself after that.

Persimmon (PSN)

What can be seen on the daily chart of Persimmon (PSN) currently is the way that the stock has so far delivered a bear trap rebound from below the former June 1,079p. This provides us with a reasonable bear trap buying opportunity, with a relatively decent

risk/reward attached. Indeed, the idea is backed by the way that the latest dead cat bounce has come in at an oversold RSI level under 30 and well above the 200-day moving average now at 1,010p. Nevertheless, even the greatest fan of this stock would have to admit that the best on offer on the upside at the moment would appear to be former 1,173p initial July support.