Equity markets largely inched sideways yesterday as expectations of earnings season volatility and upcoming economic data releases paved the way for a fairly uneventful trading session. Defense-manufacturer Lockheed Martin (LMT) posted encouraging quarterly results, while shipping bellwether United Parcel Service (UPS) reported lackluster results and went on to lower their outlook for the second half of 2013. Looking ahead, many were hesitant to jump in and out of positions ahead of durable goods orders and consumer sentiment data which are slated to come out on Thursday and Friday morning respectively [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 new home sales to come in at 483,000, which would mark a healthy jump from the previous month’s reading of 476,000.Chart Analysis
Consider XHB’s one-year daily performance chart below. This ETF has done a nice job of rebounding off its 200-day simple moving average (yellow line) over the past month, but weakening fundamentals are keeping a lid on bullish momentum here. Momentum traders have yet to fully return to XHB since the last pullback given last week’s discouraging data; June housing starts came in at 836,000, falling way short of the previous month’s reading of 928,000. Furthermore, looming fears of the Federal Reserve tapering bond-repurchases has caused additional concerns surrounding the homebuilders sector, which so far has enjoyed stellar returns thanks to the Fed’s very accommodative policy over the past two years [see How To Swing Trade ETFs].
From a technical perspective, it’s quite clear that investors are unsure of this fund’s direction over the short and medium term; notice how XHB has been oscillating around its 50-day moving average (blue line) for the last week, failing to breakout in either direction. As such, we advise long-term investors to consider waiting before jumping in long here because a pullback appears to be on the horizon [see How To Take Profits And Cut Losses When Trading ETFs].Outlook
If the latest home sales data comes in well above expectations, it could serve as the much needed catalyst to reignite bullish momentum in XHB; in terms of upside, this ETF has upcoming resistance near the $32 level. On the other hand, another disappointing housing data release can inspire further profit taking in this sector; in term of downside, XHB 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.
- United Parcel Service