Wednesday’s ETF Chart To Watch: XHB Flirting With Resistance Ahead Of Housing Data

by on July 17, 2013 | ETFs Mentioned:

Stocks gave into bearish pressures on Tuesday as mixed earnings reports from industry bellwethers clouded the headlines. Disappointing results from Coca-Cola (KO) mixed with hawkish comments from Kansas City Fed President Esther George prompted many to lock-in profits ahead of Fed Chairman Bernanke’s testimony to Congress taking place later today through Thursday [see also The Best Dividend ETF For Every Investment Objective].

Our ETF to watch for today is the SPDR Homebuilders ETF (XHB, A+) which could experience volatile trading as investors react to the latest housing market data. Analysts are expecting for June housing starts to come in at 950,000, which would mark a healthy jump from the previous month’s reading of 914,000.

Chart Analysis

Consider XHB’s one-year daily performance chart below. This ETF has staged an encouraging rebound since bouncing off its 200-day moving average (yellow line) on 6/24 following the Fed stimulus-fear induced sell-off which began on 5/22/2013. While the recent rally is by all means a positive for the security, investors should be aware of a potentially worrisome technical pattern at hand; notice how XHB has posted lower-highs and lower-lows since peaking at $32.69 a share. XHB is undeniably still in a strong uptrend from a long-term perspective, however, the recent trend of lower-highs may suggest that fewer buyers have been stepping in after each pullback, which could signal a potential trend reversal [see 7 Rules ETF Day Traders Must Know].

XHB

Click to Enlarge

We advise conservative investors to wait and see how XHB behaves around its upcoming support at the $30 level before jumping in long here [see How To Swing Trade ETFs].

Outlook

If the latest housing starts data comes in above expectations, XHB should have the wind at its back for the day; in terms of upside, this ETF has upcoming resistance around $32 a share. On the other hand, disappointing data can inspire another sell-off in the homebuilders sector; in terms of downside, this ETF has immediate support at $30 a share followed by the $28 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.