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

by on October 16, 2012 | ETFs Mentioned:

Bullish sentiment permeated Wall Street at this week’s opening bell as positive data welcomed back buyers. U.S. retail sales set a positive tone for the day after this figure increased by 1.1% versus the expected 0.9%. On the equity front, Citigroup stole the headlines after the financial juggernaut reported better-than-expected earnings per share, encouraging the “risk on” trade for the day [see Free 7 Simple & Cheap ETF Portfolios].

Given the recent string of encouraging housing market reports, this latest homebuilders index data should come into the spotlight later today. As such, the State Street SPDR Homebuilders ETF (XHB, A+) is on our  radar screen because it may see an increase in trading activity following this release. Analysts are expecting for the latest homebuilders index reading to come in at 42, marking a modest increase from the previous figure of 40 [see also 8% Yield ETFdb Portfolio].

Chart Analysis

Since soaring to $26 a share in early September of this year, XHB has been trading within a fairly well-defined range (see red lines). This ETF has hit resistance just above the $26 level on three occasions: first on September 14, then on September 21, and most recently on October 5, 2012. In each instance cited above, XHB remained resilient and manged to bounce off support around $24.50 a share [see 101 ETF Lessons Every Financial Advisor Should Learn].

Click To Enlarge

Seeing as XHB is currently trading near the bottom-half of its short-term range, we feel that a long trade offers an attractive opportunity to tap into upside while being able to closely manage downside risk [see our ETF Technical Trading FAQ].

Outlook

If homebuilders confidence improves, expect for XHB to resume its technical price pattern; in terms of upside, the next major resistance level for this ETF comes in at around the $26.10 mark. On the other hand, disappointing data may encourage further profit-taking in the homebuilders sector; in terms of downside, XHB has immediate support at $24.50 a share followed by the $23 level. 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.