Editor’s Note: Sam Collins will be on vacation until June 25. Filling in for him will be two other top technical analysts, Chris Johnson and Jon Lewis.
SPDR S&P Homebuilders (NYSE: XHB) — The housing sector got a punch in the nose yesterday, when housing starts dropped 10% from April to May. The drop was clearly a disappointment, and it comes on the heels of residential builders’ sentiment falling sharply in June.
XHB’s chart shows the sector may be due for a pullback after putting in another in a series of lower highs for the past couple of months. The 20-day moving average is also conspiring to put a lid on further upside.
Another factor working against XHB is peak July call open interest at the $17 strike. Strikes with heavy call open interest often provide strong resistance (heavy put strikes typically provide support). When combined with an overhead declining moving average, this resistance becomes even stronger. That’s why XHB is in the “sell zone” based on trendline resistance and heavy overhead call open interest.
Based on the recent pattern of lower lows and lower highs, we expect XHB to drop to at least $15. Below that, we’re seeing potential support at $14.
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