Shares of homebuilders and other housing-related stocks rallied Wednesday, sending some back up to key technical resistance levels that could soon launch them even higher. Perhaps a continued low-interest-rate environment with moderate albeit slowing economic growth is just what the doctor ordered for housing and home construction ETFs like the iShares U.S. Home Construction ETF (ITB)
On Monday, Dec. 29, I pointed to shares of homebuilder PulteGroup, Inc. (PHM), which showed a constructive posture on both the multiyear and daily charts, and has since resolved higher. Today I would like to take the analysis a little further and broader and discuss the bullishness of the broader housing sector.
Aside from the technical picture, the continued low-interest-rate environment is at the margin a positive for housing as a sector (unless the economy falls off a cliff again, of course).
And this is exactly where we can use technical analysis as a forecast tool and as something to enhance a view base off a structural backdrop — in this case, the 10-year U.S. Treasury yield at 1.95% this morning.
ITB Charts
Getting right to the charts, let’s start off with the multiyear weekly chart of the ITB.
We see an ETF that rallied 225% from October 2011 until May 2013, but has since been stuck in a bigger-picture consolidation range. If we look at the price action within this consolidation phase, we see that the upper end of it (the $26 area) has now been tested four times, while the lower end of it (around the $20 mark) was only reached once.
The ETF then actually made an important relative higher low in mid-October when the broader market put in its V-shaped bottom. Directional momentum, as represented by the Relative Strength Index at the bottom of the chart, is also curling back up while the ETF has been trading in the upper half of the Bollinger Bands (blue lines) for the past few weeks, and looks like it wants to continue higher along the upper band.
Looking at this another way, the way in which ITB has been consolidating near the top of its range since spring 2013 makes it seem likely that the ETF will be released higher sooner than later.
On the daily chart, we see that the ITB ETF also formed a nice higher low in mid-December, which bounced it right off the confluence area made up of its 100- and 200-day simple moving averages (blue and red lines respectively). The ETF has since wiggled itself back up to the late-November highs for the third time as it bounced off the rising 50-day SMA (yellow line) Tuesday and followed through with a 3.27% rally Wednesday.
Traders and active investors should take advantage of this constructive backdrop and price action by buying the iShares Dow Jones US Home Const. ETF near the $26 area for an initial move toward $27.50.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
