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Foreclosure Report: Foreclosures up 30 percent in February

Despite halts on new foreclosures by several major lenders, the number of households threatened with losing their homes rose 30 percent in February from last year’s levels, RealtyTrac reported Thursday.

Nationwide, nearly 291,000 homes received at least one foreclosure-related notice last month, up 6 percent from January, according to the Irvine, Calif-based company. While foreclosures are highly concentrated in the Western states and Florida, the problem is spreading to states like Idaho, Illinois and Oregon as the U.S. economy worsens.

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The rise in foreclosure filings came despite temporary halts to foreclosures by Fannie Mae and Freddie Mac, and major banks JPMorgan Chase, Morgan Stanley, Citigroup and Bank of America.

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While the number of foreclosures continue to soar nationwide, banks have held off listing properties for sale. There were around 700,000 such properties nationwide at the end of last year, making up a “shadow inventory” of unsold homes that could drag the housing crisis out even longer.

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Still, the faltering economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread. Nearly 12 percent of all Americans with a mortgage — a record 5.4 million homeowners — were at least one month late or in foreclosure at the end of last year, according to the Mortgage Bankers Association. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.

The RealtyTrac report said more than 74,000 properties were repossessed by lenders in February as the worst recession in decades, falling home values and stricter lending standards continue to sap the U.S. real estate market.

Nevada, Arizona, California and Florida had the nation’s top foreclosure rates. In Nevada, one in every 70 homes received a foreclosure filing, while the number was one every 147 in Arizona. Rounding out the top 10 were Idaho, Michigan, Illinois, Georgia, Oregon and Ohio.

Among metro areas, Las Vegas was first, with one in every 60 housing units receiving a foreclosure filing. It was followed by the Cape Coral-Fort Myers area in Florida and five California metropolitan areas: Stockton, Modesto, Merced, Riverside-San Bernardino and Bakersfield.

With foreclosures increasing, home builders are not going to see a turnaround anytime soon. Infact some of them might not survive this downturn. Beazer Homes is one such candidate. As shown from the bar chart, all home builder stocks have dropped between 25% to 95% in the last 9 months.  I expect them to keep going lower.

Here is the intra-day chart of SWHC. I posted about the key resistance/support for SWHC in an earlier post.

Alot of novice investors/traders still do not understand resistance and support very well. Let us understand that by looking at SWHC intra-day chart. SWHC recently put up a high of $4.80. However there is no way to know the exact top price to short into. What we know however is at what price the stock sees alot of buying and at what price it sees alot of selling. With this knowledge you can find critical trade setups.

From the recent activity we know that $4.50 has been its critical resistance/support level. Read the earlier post to understand it better as to why $4.50 was the key. Today morning SWHC opened at $4.38 and tried to make a run towards the $4.50. If this key resistance was taken out, this stock could have easily spiked to $4.80 levels.  So the trade setup should be to short under $4.50, but cover with a stop loss on the break of $4.50, say at $4.55, taking a 6-10 cent loss. Or take a long position on the break of $4.50 with a stop loss below it, say at $4.45.

However, if the $4.50 was not taken out, this stock could drop back. This is exactly what happened. It hit $4.48 and reversed. Once it reversed it never looked back and was under constant selling pressure. It eventually dropped till $4.00 which was its next key support level. This means any smart trader could have made 30-45 cents profit with a possibility of 6-10 cents loss providing a risk:reward ratio of 4x approximately.

Tip: Learn to spot resistance/supports and create trade-setups accordingly.

With the Dow putting up 379 points today we saw many stocks popping up higher. Massive short covering fueled the rally with Dow, SP500 and Nasdaq closing at 5.80%, 6.37% and 7.07% respectively.

Citibank (C) was the reason for markets to cheer after its Chief Executive Officer commented, the Company was profitable in the first two months of 2009 and is confident about its capital strength. The Company said revenue in January and February was $19 billion, excluding various writedowns, versus a quarterly average of $21 billion as adjusted in 2008.

Below is the list of top 20 pops for the day. I have filtered the list based on price being greater than $1.50 and volume higher than 150k.

A. M. Castle & Co. (CAS) a specialty metals and plastics distribution company, topped the list with a 52% pop.