1:00pm (EST)

The market has hit 10-month highs as the Dow is currently up 80 points to 9,589.  The Nasdaq is showing a gain of 15 points and stands at 2,033 while the S&P 500 has jumped 8 and is 1,034.

I mentioned in the Weekly Wrap that economic news would take on more meaning this week as earnings wound down and today’s rally can be attributed to the consumer confidence data and the housing figures.  Home prices rose for the 2nd consecutive month and when you throw in the Bernanke bonus it’s easy to see why the bulls have taken this market higher.

Homebuilding stocks (add to you Watch List) are getting a pop as Pulte Homes (PHM, $13.12, up $0.51), Lennar (LEN, $15.27, up $0.70) and KB Home (KBH, $18.15, up $0.65) are up 4%-5%.  Lennar was a huge winner on the short side a few years ago.  Here were my thoughts two years ago:

Lennar on 07/10/07:

“With the housing market showing no signs of recovery any time soon it may be time to take a look at some of the stocks in the sector that could be headed lower. While we may have arrived to the party late, I certainly don’t think the party’s over as the whole group could see continued new lows. Although it’s hard to predict where the bottom is for some of these stocks, I believe they could still see another 15% to 20% drop. As such, if my forecast is right, Lennar ($34.86, down $1.45) could be headed below $30.”

A note on Watch Lists.  This is how you find trades and this is how you keep track of sectors.  We have had a lot of new subscribers this week and I often talk about keeping Watch Lists as a way to keep track of sectors and possible trades.  Look, when one sector gets hot, another gets cold.  Money moves in, money moves out.  It’s an endless game we play and we can go long or short.  That is the beauty of it all, folks.  It makes what we do the coolest job in the world.

Speaking of which, have you seen the action in Fannie Mae (FNM, $1.88, up $0.18) and Freddie Mac (FRE, $2.14, up $0.09)?  Up 20%-30% yesterday on huge volume.  These two stocks were also a favorite punching bag of mine on the way down.  In fact, if you research this blog from July 2007 you will see where I profiled trades that returned 140%, 150% and even 216%.

I wanted to point some of these things out because the trading manual I have been working on is nearly complete.  We are also entering a “trader’s market” and I am almost 100% certain the volatility is going to pick-up even more so.  You have seen us take quick gains and it is okay to take a 100% return on half your profits and close the rest when they hit their stops.

You have to remember…there is always a trade and we are all about making money.  However, a lot of beginning investors will lose their profits because they don’t have a feel for the market or they think a losing position will come back.  On the flip side of that, some investors get a 100% return only to have visions of making 200% or 500% in a week.  In the meantime, they start to lose that 100% profit and end up taking a loss on the trade.  I’ve seen it time and time again.  So watch your stops and take profits a little early if you see something you don’t like.

Rick@MomentumOptionsTrading.com