Major equity indexes traded sideways for most of the session on Wall Street, ending up in mixed territory as the closing bell rang. Profit-taking pressures emerged as the latest FOMC minutes revealed that top Fed officials are leaning towards another round of bond buying. Highlights from the report include the following statement, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” Although the economic landscape has surely improved in recent months, the Fed is clearly still cautious about taking off the “training wheels” so to speak [see also The Ultimate Commodities Survival Kit: 5 Must-Haves].
Investors’ focus will remain on the homefront today as housing market data hits the street, which brings the spotlight onto the State Street SPDR Homebuilders ETF (XHB, A+) for the day. XHB could be in for a wild day as markets digest the latest round of new home sales data; analysts are expecting for this figure to come in at 365,000 versus the previous reading of 350,000 [see also 4 "Recession Proof" ETFs].
Since the beginning of August of this year, XHB has been on an absolute tear gaining upwards of 4% alone in the trailing two-week period. Notice how this ETF has been able to resume its longer-term uptrend after breaking above major resistance around $22 a share. XHB’s most recent up-leg is significant because it had previously struggled to break above the $22 level (blue line) on several occasions; looking back, this ETF tried, and failed, to summit resistance at $22 a share on March 27, May 2, July 5, and most recently on July 27, 2012 [see also How To Lose Money Trading ETFs].
Conservative investors waiting to get in long should wait and observe how XHB behaves the next time it corrects lower; if it manages to hold support at $22 a share, then the longer-term uptrend intact is likely to continue full steam ahead with short-lived corrections [see also 17 ETFs For Day Traders].
If the latest home sales data paints a bullish outlook, homebuilders may lead the rally on the day; in terms of upside, the next major resistance level in sight comes in at $25 a share. On the other hand, a sour release could prompt profit-taking; in terms of downside, the first level of support for XHB comes in at $22 a share followed by the $21 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
Disclosure: No positions at time of writing.