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It's not just housing that may be sensitive to interest rates

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While economic data in the housing sector remains rather robust due to lower interest rates helped along by a weaker economy, the FOMC decision to keep rates where they are and a more "neutral" stance on interest rate cuts has seen some selling take hold in the housing sector today.

Also sensitive to mortgage rates are large ticket items like motor homes that can cost the consumer upwards of $100,000. On www.rvtraderonline.com, you can purchase a 1999 Newmar Dutch Star for just $111,250. The point is, motor homes aren't necessarily cheap and grandma and grandpa may not necessarily be financing some of these houses on wheels with 3-year 0% financing offers.

Winnebago Industries Chart - $0.50 and $1 box

Shares of Winnebago (NYSE:WGO) $43.90 -11.13% have been in a major bull market since December of 2000. That's right about when Treasury YIELDS reached their peak and YIELD began falling. That helped bring down some loan rates that even motorized homes like recreational vehicles are tied to.

Today's trade at $45 turns the chart of WGO near-term bearish and now has the vertical count turning bearish to $38. This bearish count could grow, but if I had been a longer-term bull in WGO, I'd be willing to take some profits off the table here.

This morning, WGO reported earnings of $0.45 a share, which handily beat estimates compiled by Zacks of $0.41. Revenues for the second quarter of fiscal 2002 were $184.2 million, a 29.2% increase compared to revenues of $142.5 for the second quarter of 2001.

"We believe that lower interest rates and improvements in economic conditions favorably affected demand for Winnebago Ind. motor homes, which in turn contributed to the increased revenues and earnings for the Company's second quarter," Said Winnebago Chairman, CEO and President Bruce D. Hertzke.

It may be noted that in February, Mr. Hertzke filed to exercise 15,000 shares on February 4th when the stock was trading near the $41 level. 10K shares were from an exercise of options priced at $8.56/share and another 5,405 via exercise of options priced at $18.50/share.

Maybe he's been writing some covered calls recently on his holdings, but his statements do hint how important the lower interest rate environment has been for improved sales.

The "risk" for further bullishness now becomes the rate or strength of future economic growth should the MARKET continue to sell Treasuries. A bear would be very early in shares of Winnebago as the stock remains in a longer-term upward trend.

Current action looks to be simply that of profit taking by bulls that have made a lot of money in a stock that has benefited from a bull market due to lower interest rates and a strong consumer.

Jeff Bailey
Senior Market Technician
Option Investor

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