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

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Equity markets ended the first trading session of the week on a mixed note as the first signs of bullish momentum waning surfaced. Caterpillar’s upbeat earnings results and expectations for “better growth” in the second half of 2013 went largely unnoticed alongside durable goods orders data, which showed growth of 4.6% versus the expected 2.3%. Instead, investors found a reason to take profits after the latest pending home sales report came in worse than expected; this figure declined by 4.3%, versus last month’s figure, which showed an increase of 1.6% [Download 101 ETF Lessons Every Financial Advisor Should Learn].

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Homebuilders stocks will be in the spotlight later today as investors look to see whether the latest Case-Shiller price data supports the ongoing rally in this sector. As such, the iShares Dow Jones U.S. Home Construction Index Fund (ITB, A-) may see an uptick in trading volumes after the opening bell; investors will look for the Case-Shiller figure to come in above last month’s reading of 4.3% [see 5 Most Important Chart Patterns For ETF Traders].

Chart Analysis

ITB has continued its bull run into 2013 full steam ahead as better-than-expected housing data keeps hitting the Street. The recent price action in this ETF is undeniably bullish as ITB has consistently posted high-highs and higher-lows over the last month. Despite the overwhelming optimism surrounding this ETF, from a technical perspective, we feel that a healthy correction may be just around the corner; notice how this ETF has been climbing higher within a well-defined upward trading channel (blue lines) since the summer of 2012 [see also 2013 ETFdb Portfolio].

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ITB

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With ITB trading right along its upper resistance boundary, selling pressures may arise as investors digest profits from this ETF’s run-up, which has gone on without any pullback since the start of 2013 [see 17 ETFs For Day Traders].

Outlook

If the latest home price data come in better than expected, ITB will have fundamental reasons to continue its ascent; in terms of upside, the next major resistance level will likely come in at around $25 a share. On the other hand, disappointing data may offer reasons to take profits given the hefty gains accumulated by ITB thus far on the year; in terms of downside, this ETF has immediate support at $22 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.

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