Wait for a breakout to buy homebuilders

December 9, 20132 Comments

The SPDR Homebuilders ETF (XHB-U.S.) contains a wide number of companies associated with homebuilding in the USA. If you pull the ETF apart, you will find an assortment of bullish and bearish charts – but the net weighting of the index has resulted in a chart that has been consolidating for the better part of 2013. Technical support in the consolidation pattern this year has been provided via rising troughs that seem to roughly bounce off of the vital 200 day MA. Resistance has been relatively flat, with several unsuccessful attempts by the index to punch through $31.50 – $32.50. The ETF is slightly oversold according to most momentum indicators, but none show signs of hooking up yet.

homebuilders nearterm

Seasonally, this index provides an entry point around this time of the year. I would wait before buying, however. Resistance has been strong at that $32-ish level mentioned above. The 50 and 200 day MA’s are rising. Comparative relative strength vs. the S&P 500 is flat. My rule of thumb for buying within this type of trading pattern is to hold off until resistance is taken out. Further, I like to wait at least 3 days to confirm the breakout. ETF volume patterns are not as important as with stocks, so a volume-confirmation on the breakout is not necessary.

Should this sector break out, I’ll be looking for a multi-month run in price.

I have this one on my watch list. Perhaps you should too.

2 Comments

  • XHB is indeed above the noted resistance but the Stockastics look oversold and starting to hook down. So would it be a buy here?

    Reply
    • Hi Dave
      Stochastics is an entry refining tool–it could indicate a s/t pullback, which I would use to consider buying.

      Reply

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