Trade of the Day: XHB on the Verge of a Death Cross

SPDR S&P Homebuilders (ETF) is just a fraction away from issuing this long-term bearish signal

SPDR S&P Homebuilders (ETF) (XHB) — This ETF tracks the S&P Homebuilders Select Industry Index. The top 10 holdings in XHB are Helen of Troy Limited (HELE), Williams-Sonoma, Inc. (WSM), Lowe’s Companies, Inc. (LOW), Home Depot Inc (HD), NVR, Inc. (NVR), Allegion PLC, A. O. Smith Corp (AOS), Aaron’s, Inc. (AAN), D.R. Horton, Inc. (DHI) and Restoration Hardware Holdings Inc (RH).

I last recommended XHB as the Trade of the Day for participation in the homebuilding industry on July 10. At the time, the fundamental and technical picture for the group appeared bright, and I said: “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.”

Now, however, labor shortages, higher prices for homes and falling revenues of suppliers have put a price lid on companies in the industry and the homebuilding ETF.

XHB topped on Aug. 19, above $39, but within three days, the ETF days fell to a low under $32. Rather than rebounding and establishing an uptrend, XHB formed a right triangle with bearish implications.

Selling has consistently outpaced buying volume, and the 50-day moving average is just a fraction from crossing through the 200-day moving average, which would result in a death cross — a long-term bearish signal.

Long-term investors who own XHB may want to continue to hold for a recovery in a year or so. But others should sell shares at the market price. Traders should consider buying put options on XHB.

XHB Chart
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Chart Key

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