A bounce attempt is under way on Wall Street, but so far it’s underwhelming to say the least. The S&P 500 is barely in the green and buyers have yet to materialize in force.
One bright spot among an otherwise dismal showing is home building stocks. The SPDR S&P Homebuilders (ETF) (NYSEARCA:XHB) is up almost 1% on Wednesday. Among the top performers in the space are Standard Pacific Corp. (NYSE:SPF) and Ryland Group Inc. (NYSE:RYL) which have both gained roughly 2%.
The recent action in XHB illustrates one of the silver linings of a market pullback. It causes strong stocks and sectors to return to support levels providing lower risk entries for buyers. Traders who were unwilling to chase the XHB ETF up at $37 now have a chance to participate in the $35 zone.
The overall trend in homebuilding stocks looks solid. While the recent bout of profit taking took XHB down a notch or two, it didn’t do any damage to the uptrend. What’s more, today’s bounce is occurring right at the 50-day moving average, showing the bulls are unwilling to let the ETF breach a pivotal support level without a fight.
For those inclined to jump aboard the ongoing bull market in homebuilder ETFs now seems a good a time as any to take the plunge.
Build an option trade on XHB
Despite the recent downturn in XHB the implied volatility of its option contracts remains depressed. This favors those looking to buy options.
If you’re looking for a cheap way to participate in further upside in XHB over the coming months consider buying the June 34 call for $2.30 or better. The risk is limited to the initial $2.30 debit and will be forfeited if XHB sits below $34 at June expiration.
The max reward is unlimited.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
