Selling pressures swarmed Wall Street yesterday as mixed data releases and lackluster corporate earnings made for an uncertain landscape. Thursday saw encouraging weekly jobless claims data collide with worse-than-expected industrial production figures, while on the corporate front Cisco announced layoffs and issued a cautious outlook, and retail juggernaut Wal-Mart fell short of analysts’ estimates for the quarter [see Visual Guide: Major Index Returns By Year].
Our chart to watch for today is the SPDR Homebuilders ETF (XHB, A+), which may experience volatile trading after investors react to the latest housing starts data. Analysts are expecting for the July housing starts figure to come in at 915,000, which would mark a substantial jump from the previous reading of 836,000.Chart Analysis
Consider XHB’s one-year daily performance chart below. This ETF has struggled to resume its steep uptrend following its pullback after hitting $32.69 a share on 5/22/2013; since then, XHB has oscillated around the $30 level, failing to break out in either direction as a result of growing uncertainty among investors in response to the expected Fed taper in September. XHB appears to be gearing up for a rebound as bargain buyers aggressively stepped in following yesterday’s pullback; note the above average volumes seen on 8/15 and also consider how XHB has previously rebounded off this same support level (red line) in April and late June [see How To Take Profits And Cut Losses When Trading ETFs].
Conservative investors looking to step in should utilize a tight stop-loss around $28 a share because there may be further profit taking before XHB finds more stable footing to rebound from [see 7 Rules ETF Day Traders Must Know].Outlook
If the latest housing starts data reignites bullish momentum for the homebuilders, XHB should have the wind at its back; in terms of upside, this ETF has near-term resistance at $30 a share followed by the $32 level. On the flip side, worse-than-expected housing starts data could inspire the next leg down; in terms of downside, XHB has major support around 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.