Friday’s ETF Chart To Watch: SPDR Homebuilders ETF (XHB)

by on January 20, 2012 | ETFs Mentioned:

Stocks are on a roll. Equity indexes climbed higher for a third day this week as bullish momentum kept the winning streak alive on Wall Street. Investors were cheerful to see Bank of America swing a fourth-quarter profit, although Morgan Stanley on the other hand missed estimates. Nonetheless, optimism prevailed thanks to encouraging data from the domestic labor market; jobless claims lifted stocks higher as 352,000 people filed for unemployment benefits, versus the projected 375,000. Gold futures edged lower throughout the trading day and prices settled just below $1,660 an ounce [see How Low Can Gold ETFs Go?].

Investors will digest the latest existing home sales report later today, which brings the State Street SPDR Homebuilders ETF (XHB) onto our radar screen for the day [see XHB Holdings]. U.S. housing market data has been overwhelmingly positive over the past few months and investors will certainly look to keep this trend going. Analysts are expecting for existing home sales to come in at 4.7 million for the month of December, versus the previous reading of 4.42 million.

Chart Analysis

XHB has staged an impressive comeback since bottoming out at $12.21 a share on 10/4/2011 [see XHB Returns]. This ETF has been bolstered by a string of encouraging data releases from the U.S. housing market, which is undoubtedly showing signs of bottoming out thanks to improvements in the labor market and a resurgence in consumer confidence. XHB appears poised to extend its gains in the coming days from a technical perspective; notice how this ETF has been steadily climbing higher, backed by relatively high trading volume, since breaking past its 200-day moving average (yellow line).

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Rising share price coupled with increasing volume is generally considered to be an indication that the bullish momentum is well justified and may be expected to continue as more and more investors take notice of the favorable price action in the given security.


If the latest housing market data comes in better-than-expected, investors’ confidence in the domestic real estate market will likely improve. Likewise, XHB may rally higher as investors rejoice over compelling evidence that the U.S. housing market is showing signs of a recovery [see Are U.S. REIT ETFs A Buy In 2012?]. In terms of upside, this ETF has considerable resistance at the $20 mark, seeing as how it encountered headwinds when it neared this level back in late April of 2011. On the other hand, if the data disappoints, profit-taking pressures could prevail. In terms of downside, XHB may fall back to support near $18 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.