With no major economic releases to steer investors’ attention away from corporate earnings, sour quarterly performance results stole the headlines. Selling pressures persisted right from the opening bell as worse-than-expected reports from bellwethers DuPont and 3M caused a host of global growth worries to resurface; chemical maker DuPont reported a smaller-than-expected profit and announced it would need to cut about 1,500 jobs, while conglomerate 3M revised its forecast lower due to slowing growth in European and Asian markets [see Free 7 Simple & Cheap ETF Portfolios].
Investors will have a chance to digest economic news aside from earnings later today as the September new home sales data hits the street. As such, our chart to watch for the day is the State Street SPDR Homebuilders ETF (XHB, A+), which may see an uptick in trading activity following the latest housing market report. Analysts are expecting for the new home sales figure to come in at 387,000, marking a modest improvement from the previous reading of 373,000 [see also How To Play Marc Faber's 20% Market Drop].
The homebuilders sector has been on fire throughout 2012, with XHB gaining upwards of 50% from a year-to-date perspective. Recent price action however suggests that this hot ETF may be due for a healthy pullback. Notice how XHB has been stuck in a trading range (red lines) since hitting $26 a share in early September; this ETF has oscillated between the $24.50 and $26 levels over the past few weeks, failing to break out in either direction. What’s even more noteworthy is that XHB has attempted, and failed, to summit $26 a share on several occasions recently, perhaps suggesting that a fundamental catalyst may be necessary to propel this ETF past resistance [see our ETF Technical Trading FAQ].
From a technical perspective, entering into a short position at current levels is attractive seeing as how XHB is trading near the upper-half of its short-term range [see also 101 ETF Lessons Every Financial Advisor Should Learn].
If the latest new home sales data comes in better-than-expected, XHB may receive the much-needed fundamental boost to propel it higher; in terms of upside, this ETF has major resistance right around the $26 level. Sour housing data may, however, inspire profit-taking pressures; in terms of downside, XHB has support around $24.50 a share followed by the $22 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.