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Novastar Fincl. - NFI - cls: 31.65 chg: +0.97 stop: 29.24

Company Description:
NovaStar Financial, Inc. is one of the nation's leading lenders and investors in residential mortgages. The company specializes in single-family, nonconforming mortgages, involving borrowers whose loan size, credit details or other circumstances fall outside conventional mortgage agency guidelines. A Real Estate Investment Trust (REIT) founded in 1996, NovaStar efficiently brings together the capital markets, a nationwide network of mortgage brokers and American families financing their homes. NovaStar is headquartered in Kansas City, Missouri, and has lending operations nationwide. (source: company press release or website)

Why We Like It:
If Wall Street believes that we could be nearing the end of the FOMC's rate hike cycle it could be good news for mortgage lenders like NFI. It appears that this train of thought, following the release of the latest FOMC minutes on Tuesday, is what pushed NFI to breakout from its consolidation pattern. The high-volume breakout on Tuesday also pushed the stock above its simple 50-dma and above its 3 1/2 month trendline of lower highs. We are going to suggest new plays here at $31.65 but there is a good chance that NFI will pull back and retest the $30.50 region as support. Patient traders might do well to wait for a dip and then evaluate a bullish entry. NFI's next earnings report is not until February so we're going to target the 200-dma near $35 over the next eight weeks.

Suggested Options:
We are suggesting the January calls.

BUY CALL JAN 30 NFI-AF open interest=4641 current ask $2.75
BUY CALL JAN 35 NFI-AG open interest=2525 current ask $0.60

Picked on November 23 at $ 31.65
Change since picked: + 0.00
Earnings Date 02/06/06 (unconfirmed)
Average Daily Volume = 621 thousand

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