Tuesday’s ETF Chart To Watch: XHB Rally In Focus After Home Builders’ Index Release

by on September 17, 2013 | ETFs Mentioned:

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. 

Chart Analysis

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].

Click to Enlarge

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].

Outlook

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.