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Trade of the Day: Build a Long-Term Position in XHB

SPDR S&P Homebuilders (ETF) (XHB) — This ETF, which tracks the performance of the S&P Homebuilders Select Industry Index, has significantly outperformed the market. Year to date, XHB is up 7% while the S&P 500 is virtually unchanged. In the past 12 months, the fund has delivered a nearly 14% return compared with just 4% for the broader market index.

Capital IQ gives the ETF an overall rating of “overweight.” XHB has a low expense ratio of 0.35% and an annual yield of 0.45%.

The fund’s top 10 holdings are Ryland Group Inc (RYL), Lennar Corporation (LEN), Standard Pacific Corp. (SPF), Aaron’s, Inc. (AAN), PulteGroup, Inc. (PHM), M.D.C. Holdings, Inc. (MDC), Owens Corning (OC), D.R. Horton, Inc. (DHI), Tempur Sealy International Inc (TPX) and Toll Brothers Inc (TOL).

XHB is in a clear bull channel that began in January 2012 at just under $20 a share. This year, we have seen three buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), be triggered, the latest as XHB reversed from its 50-day moving average at about $36 on July 7.

The 50-day moving average has been a mid-support line within the bull channel. The lower support line is at $35.50, and resistance is at about $38.50.

This is not a trading recommendation; however, for investors seeking representation in the homebuilder group, XHB is an excellent and relatively inexpensive method of producing solid long-term gains. My 12-month target is $42, which would result in a 15% advance from the current price.

XHB Chart
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Chart Key

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