Analyzing the state of the housing market in the U.S. is no
easy task and has many different segments that can be hard to analyze.
Home sales, construction spending, pending sales, indexes and lumber
prices are a few of the commonly used metrics for gauging the trend’s
direction and strength. Of those mentioned, one of the most reliable
indicators used by active traders is that of lumber since it is used as a
primary input. In a
recent article,
we took a look at lumber prices and the weakness shown on many of the
charts is implying that the housing market may be about to head lower.
In the article below, we’ll take a look at several assets related to the
home-builders to determine the state of the market and where it could
be headed next. For related reading, see:
Will Homebuilders Continue To Outperform?
Homebuilders ETF
Investors interested in analyzing home-builders typically turn to
common exchange traded funds such as the SPDR S&P Homebuilders Index
(
XHB).
Taking a look at the chart below, you can see that the price has
recently broken below its 200-day moving average. In technical analysis,
a price trading below its 200-day moving average typically is used to
suggest that the long-term momentum is on the side of the bears.
Furthermore, traders will watch for the moment where the 50-day moving
average (blue line) crosses below the 200-day moving average (red line).
This bearish
crossover
(shown by the red circle) is a very common sell signal and is known as
the death cross. This crossover traditionally marks the beginning of a
long-term downtrend and many bearish traders will likely look to protect
their positions by placing stop-loss orders above the 50-day and
200-day moving averages, which are currently trading at $35.89 and
$36.19 respectively. The close proximity to the resistance is creating
an ideal risk/reward scenario for the bears and the bulls will likely
want to remain on the sidelines until bullish signals start appearing on
the charts. For more, see:
Trading Bearish Reversals
Leveraged Homebuilders ETN
Traders who want to increase the leverage of their positions may want
to investigate the ETRACS Monthly Reset 2x Leveraged ISE Exclusively
Homebuilders ETN (
HOML).
This fund seeks to track two times the performance of an index of home
builders. Based on the chart below, you can see that it is currently
trading within a defined downtrend and that the price action is nearing
the resistance of a descending trendline. Bearish traders will likely
watch this ETN closely and see how it behaves as it approaches $26.07.
An increase in selling volume along with a tightened trading range over
the coming trading sessions will signal a continuation of the downtrend
and will likely trigger entry points for short orders. (For more, see:
Introduction To Leveraged ETFs)
Lennar Corp.
Investors who want to trade home builders outside of ETFs may choose to investigate popular players like Lennar Corp. (
LEN)
or other components of the funds shown above. Taking a look at the
chart below, you can see that the pattern is similar to the XHB chart
shown above and the move below the 200-day moving average suggests that
the long-term trend could be shifting in favor of the bears. It is
interesting to note on this chart how the 50-day moving average hasn’t
yet crossed over its 200-day moving average. Active traders will keep a
close eye on this chart because a moving average crossover could be the
catalyst that triggers a move lower.
The Bottom Line
Based on the charts of a couple different home-builder funds and by
taking a look at their components it appears that the uptrend in the
home-builder sector is reversing. Prices are trading below key moving
averages, bearish crossovers between major averages and nearby
trendlines are all suggesting that there is a fundamental shift
occurring within the sector. It could prove strategic for bullish
traders to remain on the sidelines until bullish patterns start to
emerge on the charts. (For more, see:
5 Homebuilder Stocks To Watch)
Post a Comment