Wednesday’s ETF Chart To Watch: SPDR Homebuilders ETF (XHB)

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Profit-taking pressures have returned to Wall Street as policymakers in Washington have shown no progress in striking a deal to avoid the much-feared “fiscal cliff.” Overseas, clouds of uncertainty continue to loom over the debt-burdened currency bloc as Greece hangs on by a thread while the latest U.K. GDP report showcases that even economic powerhouses are struggling to overcome growing debt burdens around the globe. Economic data releases at home offered little relief as durable goods orders data came in flat, while consumer confidence just barely improved from last month [see 5 High Yield, Low Volatility ETF Plays].

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The State Street SPDR Homebuilders ETF (XHB, A+) will make its way across our radar today as it may see an uptick in trading activity following the release of the latest housing market data after the opening bell. XHB could be in for a very green day if the latest report adds to the string of goods news coming out of the U.S. housing market in recent months. Analysts are expecting October new home sales to come in at 390,000, marking a minimal improvement from the previous reading of 389,000 [Download 101 ETF Lessons Every Financial Advisor Should Learn].

Chart Analysis

XHB has enjoyed a stellar run-up this year as the U.S. housing market has shown consistent signs of improvement, whereas other corners of the economy, including the labor market, remain plagued with anemic growth and clouded with uncertainty. Although the long-term trend in XHB is undoubtedly bullish, this ETF may face a wave of profit-taking pressures in the coming days; notice how XHB has tried, and failed, to settle above the $26 level (red line) on several occasions since September of this year [see our ETF Technical Trading FAQ].

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XHB

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XHB has been flirting with this resistance level for the past three trading sessions; some might interpret this as a bullish sign of a higher breakout this time around. However, we advise conservative investors to wait before jumping in long given the high probability for a brief pullback in the very near-term [see 5 Important ETF Lessons In Pictures].

Outlook

If the latest new home sales report paints an optimistic picture for the domestic housing market recovery, homebuilders could be in for a rally on the day; in terms of upside, XHB must first settle above $26 a share, while the next resistance level after that comes in at the $30 mark. On the other hand, a disappointing report may inspire profit-taking pressures in XHB; in terms of downside, this ETF has immediate support at $25 a share followed by major support at the $24 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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