Tuesday’s ETF Chart To Watch: XHB Testing Support Ahead Of New Home Sales Data

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Stocks kicked off the week on a pessimistic note as bearish pressures stuck around from last week’s sell-off surrounding Fed stimulus fears. Bargain shoppers largely held off from jumping in given the plateful of data expected to hit the street this week, in anticipation that better-than-expected news would further encourage policymakers to scale back on bond-repurchase [see also The Best Dividend ETF For Every Investment Objective].

Our chart to watch for the day is the SPDR Homebuilders ETF (XHB, A+), which will look to rebound off its 200-day moving average while investors digest new home sales data from last month; analysts are expecting for this figure to come in at 463,000, which would mark an improvement from the previous month’s reading of 454,000.

Chart Analysis

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Consider XHB’s one-year daily performance chart below. This ETF has been correcting lower since peaking at $32.69 a share as fundamental fears have brought out the bears following the Fed’s recent hint at scaling back on bond-repurchases. It’s no surprise that homebuilders have been on edge since the last FOMC meeting, seeing as how the ongoing stimulus efforts being discussed correlate directly to the health of the housing industry, and likewise can have a material impact on bottom-line earnings for companies in this sector. From a technical perspective, XHB is resting on a major support level (red line) right along its 200-day moving average (yellow line); this is noteworthy seeing as how XHB was able to rebound off this same support level back in April of this year [see How To Take Profits And Cut Losses When Trading ETFs].

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Investors looking to get long in anticipation of a rebound should consider setting a tight stop-loss near or below the recent lows; this ETF could be in for another round of selling, seeing as how it is trading below its 50-day moving average (blue line), which may suggest a potential trend reversal at hand, especially if it breaks below $27 a share [see 7 Rules ETF Day Traders Must Know].

Outlook

If the latest home sales data comes in better-than-expected, XHB should have the wind at its back for the day; in terms of upside, this ETF has upcoming resistance at $30 a share followed by the previous high near the $32 mark. On the other hand, lackluster sales data could encourage another round of profit taking in the homebuilders sector; in terms of downside, XHB has immediate support around $28 a share followed by the $26 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.

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