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How To Trade Housing Stocks Now

|Includes:iShares U.S. Home Construction ETF (ITB), LEN, TOL

Last year, one of the hottest sectors in the stock market was the home-builder stocks. Leading home-builder stocks such as Lennar Corp (NYSE:LEN), and Toll Brothers Inc (NYSE:TOL) have rallied higher by more than 100 percent since the October 4th, 2011 low. This important industry group topped out around May 2013; the home-builder stocks have been very range bound since that time. Traders and investors should simply expect the home-builder stocks to be good for short term trades not long term holds.

Interest rates on the 10-year U.S. Treasury yield have dramatically risen over the past year. Currently, yields seem to be in a range between the 2.60 and 3.00 percent. The higher yields are certainly having a negative effect on the housing stocks despite interest rates still being historically low. When yields on the 10-year U.S. Treasury Note decline that is when the home-builder stocks will catch a bid higher. The opposite effect is likely to occur when yields rise, the leading home-builder stocks will likely trade lower.

Traders that want to track the entire home-builder sector should follow the iShares U.S. Home Construction ETF (NYSEITB). The ITB should have near term daily chart support around the $20.60 level. This is a spot where the home-builder stocks could stage a short term bounce.

Nicholas Santiago

Stocks: ITB, LEN, TOL