Stocks kicked off the week on a winning note as investors rejoiced after Larry Summers withdrew his bid to be the next Federal Reserve chairman. Markets were glad to see a hawk drop out of the running for the Fed seat, giving hope that the era of “ultra loose” monetary policy will persist at home [see 5 Years After Lehman's Collapse, Where Are Big Banks Now?].
Our chart to watch for today is the State Street SPDR Homebuilders ETF (XHB, A+), which could experience volatile trading as the FOMC meeting commences and investors also have a look at the latest Home Builders’ index. Analysts are expecting for the home builders confidence index to come in unchanged from last month’s reading of 59.
Consider XHB’s one-year daily performance chart below. XHB has been consolidating for over three months now since falling off its peak at $32.69 a share following the Fed taper scare which began on 5/22/2013. This pullback has allowed for many waiting on the sidelines to jump in long, although prices have yet to rally; notice how XHB has rebounded off support at the $28 level (red line) in several instances, but has also failed to re-test resistance at $32 a share [see Picture Edition: Major Asset Class Returns From The 2009 Bottom].
What’s noteworthy this time around is that XHB has managed to break the trend of posting lower-highs (blue line) after it rebounded off support; with XHB breaking above $30 a share last week, many are now eyeing the $32 level again as the next major level to keep a close watch on [see Visual Edition: The Original Businesses Of Dow Components].
If the latest home builders data strikes an optimistic tone among investors, XHB should continue higher; the next major resistance level for this ETF lies around the $32 mark. On the flip side, disappointing confidence data can prompt XHB to re-test its 200-day moving average (yellow line) again; in terms of downside, XHB has major support between $29 and $28 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.