You have 2 weeks to prepare

Starting July 19th we have a week of rockiness. That's when we get a peek at the 2nd quarter of housing.
July 19th - New Home starts
July 25th - Existing Home sales.
July 26th - New home sales

To put things in context, we know that the real estate market is softening. Th eonly question is rate and degree. Hopeful investors want a levelling off. Skeptics like me expect a deep drop as the supply/demand curve equilibrium flips: supply radically exceeds demand.
* Surge in supply sparked by rise in inventory(new homes and dumping by speculators).
* Demand drained by lack of buyers (many folks already bought, mass exodus of speculators, fear of buying an eroding asset)

As this transitions starts to take hold, we have seen mixed signals. Prices have risen, sales have been solid, and earnings are strong. Peeling back the layers, we see how short-lived these datapoints are. All strength is really from results in the first quarter - before the 0.5% rate hike. And it isn't that strong - inventory is doubling and so is the sales cycle.

As homebuilders see the rapid deterioration of the market, they will start exiting
1. Cancel new orders - land values will start to drop, demand for raw material will droop, unloading of existing raw goods into grey markets, and contract manufacturers will struggle.
2. Finish existing work in process - Get it done. This will drive short term building stats up: homes completed, manual labor for construction will firm up which will help contract manufacturers.
3. Dump existing homes - Every month is probably ~2% of housing price drop. That is bottom-line profit evaporating.

I do think that residential construction companies have further to fall. This quarter will be the last hurrah.

I called this out over 6 months ago, and it is playing out exactly as I expected. So what to do?

First of all, the reports comingout next month will be shocking. We will get a chance to see the price drops by city. This is a critical period for several reasons
1. Reflects current market status: The range of April~June really reflect houses that were sold February ~April (assuming a 60 day lag between going into escrow and prices being recorded).
2. Impacts future sales: if homebuyers see slowing sales and falling prices, then they will ask for better prices and terms. The same for sellers - they will get nervous and become flexible. This all translates into a lower price and feeds the cycle of bubble price unwinding.
While we can easily find great stories and anecdotes about prices plummeting in Boston and San Diego, this report moves from those anecdotes to a measurable trend.

I don't think that the stock market is ready for the results or the economic implications. I propose the following steps:
1. Tight stops - The market is recovering from overselling. This week is a short week. There really hasn't been a lot of convincing volume purchasing (with some notable exceptions). New stops on the way from me.
2. Zero tolerance - The market is afraid. Any company without great results will be slaughtered. ATI is one example (although it has begun to recover a bit).
3. Select the market, then the stock:
* Financial companies are risky. They are exposed to the housing financing. Plus, as this bubble unwinds, I don't doubt that lawsuits will erupt against bankers who twisted the arms of appraisers to pump up the price.
* High tech is soft. I bought semis as a contrarian move of sorts. My thinking was that sector rotation could bring them back into favor. So far, it hasn't, but we'll see. Frankly, I wan't encouraged by the lack of movement by ISIL & TRID. They aren't as beaten down, but neither are they up.
* Energy. The new reality is $70+ oil. That will spur investment in drilling and exploration. Notice how oil companies like Chesapeake are down whereas energy equipment and services are up.
* Mobile Entertainment. Content providers like DIS are looking good. AAPL solidified the standardization of the delivery business model (they didn't invent it - Napster and others had infrastructure for delivering the content). The next wave will be about broadening reach: moving to cell phone for mobile viewing, for example. This is high tech heaven - investment in delivering and monitoring content will be huge and disruptive. If this becomes a slugfest between the Comcasts and ATT's of the world, the equipment providers will win.