Homebuilder stocks continue to struggle while adapting to this higher-yield environment. For a little perspective, I drew the below chart, where I plotted the SPDR S&P Homebuilders ETF (XHB) vs. the yield on 10-year U.S. Treasury.
Since the homebuilders topped in May, the XHB is roughly 9% lower; Treasury yields have rallied roughly 35% during the same time period. To be sure, the higher-rate environment is not only weighing on the homebuilders, but across the spectrum of interest-rate-sensitive instruments. Eventually, this also will hit the broader stock market, although beyond the medium-term, rising rates and a strong dollar are positive signs for the economy.
All the while, the daily chart of XHB has started to form a three-month-long wedge, or narrowing trading range, which will remain until it doesn’t. A break below $29.30 could push this ETF quickly toward $27.80 and hence a re-test of the June lows.
Individual homebuilder stocks like Beazer Homes (BZH) are showing relative weakness vs. the index and feel heavy. Until Tuesday, BZH had support at the $16.80 area. With Tuesday’s drop, however, the stock now risks falling toward the $15 area, which is currently 7.5% away.
The chart of D.R. Horton (DHI) also is looking awfully slippery. Yesterday’s price action pushed the stock out of a small pennant formation that could quickly accelerate the stock to the downside.
Hovnanian Enterprises (HOV) on Monday retested the underbelly of an April uptrend, where it was rejected and pushed lower on good momentum.
At this point, it would take a good one- or two-day bullish reversal to undo the renewed damage in homebuilder stocks in recent days. Should a bullish undertone develop, however, these stocks could quickly gain upside momentum as traders will look to squeeze those caught short.
Serge Berger is the head trader and investment strategist for The Steady Trader. As of this writing, he did not hold a position in any of the aforementioned securities. Sign up for his free weekly newsletter here.