Tuesday’s ETF Chart To Watch: Dow Jones U.S. Home Construction Index Fund (ITB)

by on February 19, 2013 | ETFs Mentioned:

U.S. equity markets will resume regular trading hours later today following their closure yesterday in observance of President’s Day. While investors at home took the day off, European markets sank lower on Monday following speculation that Italy’s election would ultimately be gridlocked and spur uncertainty throughout the currency bloc. Looking ahead, investors will have several housing market reports to digest at home, while overseas German GDP data will likely take center stage at the end of the week [Download 101 ETF Lessons Every Financial Advisor Should Learn].

With the Home Builders’ index slated to hit the Street later today after the opening bell, our spotlight will shift to the iShares Dow Jones U.S. Home Construction Index Fund (ITB, A-), which could see an uptick in trading activity. Analyst are expecting a modest improvement in home builders’ confidence, with the index projected to come in at 49 versus last month’s reading of 47 [see also 2013 ETFdb Portfolio].

Chart Analysis

ITB has been climbing higher alongside major equity indexes in 2013, refusing to deviate from its upward slopping trendline. Upbeat housing market data coupled with improving sentiment over the global economic recovery has resonated well for this ETF, which has enjoyed a steady, and largely uninterrupted, uptrend since stabilizing above the $14 level in early June of 2012. From a technical perspective, it’s quite clear that ITB continues to trade within a fairly well-defined price channel (blue lines) [see How To Swing Trade ETFs].

Click to Enlarge

With ITB’s current price floating somewhere in the middle of its longer-term channel, jumping into any sort of position, whether long or short, is quite speculative at the moment. We advise experienced traders to go short only after ITB shows signs of a price reversal coupled with above-average trading volume; on the other hand, those looking to go long should set a tight stop-loss in case of a broad market correction [see How To Take Profits And Cut Losses When Trading ETFs].

Outlook

If the latest home builders’ index reading comes in worse than expected, it may inspire profit-taking pressures in ITB; in terms of downside, this ETF has major support at $22 a share followed by the $20 level. On the other hand, upbeat data may serve as a catalyst to propel this ETF even higher; in terms of upside, the next major resistance level lies somewhere around the $25 mark. 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

[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free-seven day trial to ETFdb Pro.]

Disclosure: No positions at time of writing.