Stocks endured a choppy session yesterday after the Fed announced it will extend the “twist” program while at the same time issuing a concerning economic outlook. Hopes for additional stimulus remain on the table as Chairman Bernanke commented, “If we’re not seeing sustained improvement in the labor market that would require additional action.” Amidst the volatile trading on Wall Street, gold sank lower as profit-taking pressures developed; futures prices for the yellow metal settled near $1,605 an ounce as the closing bell rang.
Following better-than-expected home builders’ index data on Monday, investors will once again turn their attention to the domestic housing market as relevant data hits the street after the opening bell. Analysts are expecting for existing home sales to come in at 4.6 million, a slight drop-off from last month’s 4.62 million; as such, the State Street SPDR Homebuilders ETF (XHB) is on our radar for the day because it may experience volatile trading following the latest round of housing data.
Notice the robust uptrend in XHB since bottoming out at $12.21 a share on October 4, 2011; since then this ETF has been able to climb steadily back over its 200-day moving average (yellow line) and soar to multi-year highs as it hit $22.43 a share on May 2, 2012. It’s most recent downturn appears to be a healthy correction from a technical perspective seeing as how XHB appears to have bounced off support at the $19 level. As such, this ETF appears poised to continue its longer-term uptrend over the coming weeks assuming that bullish momentum returns to equities.
One piece of bearish evidence may suggest that positive momentum for XHB is cooling off. Notice how this ETF has made a series of lower-highs and lower-lows (red channel) since peaking at $22.43 a share, perhaps suggesting that profit-taking pressures may continue as the overall sentiment in the global equity market remains clouded with uncertainty.
If the latest housing market data paints an optimistic picture, XHB could get the necessary fundamental boost to propel it back over the $21 level; investors should note that major resistance lies at $22 a share for this ETF. On the other hand, dismal home sales data could create headwinds as investors are prompted to reallocate to “safer” corners of the market. In terms of downside, XHB may sink back to $20 a share, while major resistance lies between the $19-$18 levels near the 200-day moving average. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Disclosure: No positions at time of writing.
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