Broad Selloff Hits Homebuilders Hardest

Nick Perry (Schaeffer's Investment Research) submits: Last week we saw widespread weakness, with housing the hardest-hit area. This week we find widespread weakness with housing the hardest-hit area... no, that isn't a typo:

click to enlarge

Concerns ranging from tightening credit to continuing subprime woes knocked the Dow Jones Industrial Average for more than 300 points on Thursday to help secure a downside bias for the week. More than 90% of the funds on my list were lower, with most of the decliners losing at least 2%.

As noted above, housing was hit hardest for the second week in a row. The SPDR Homebuilders (XHB) has broken below last summer's lows and is trading at it lowest point since its inception. Gold stocks, materials, and real estate were also pushed lower.

Last week I looked at the Gold Miners ETF (GDX) and noted the fund had neared the top end of a trading range that had been in place since the beginning of November 2006. I ended that discussion by saying - "The last 3 times the shares have pushed in on this ceiling, they were quickly rejected, so it will be interesting to see if that starts to happen again. A bit of resiliency here could suggest a breakout is looming." Based on the graph above, which shows the GDX lost 8% this week, it is safe to say that resiliency was not what we saw. The Gold Miners ETF now finds itself back near the middle of that range.

Bond ETFs were the strongest this week, followed by oil, internet, and biotech. The relative strength of the Internet HOLDRS (HHH) , which was hurt last week by a disappointing earnings report from Yahoo (YHOO), can largely be traced to strong earnings from Amazon.com (AMZN) that sent the stock surging.

Index performance this week:

Index performance year to date:

Charts: Google Finance

Comments

[Nidhi Kadalbal:]

Thanks for the ETF returns chart above. A good opportunity to buy in might appear in few days.

[Comment edited by SA Editors. Please use comments to contribute to discussion, not to promote web sites.]

2007 Jul 28 04:03 PM