A Look at XHB Homebuilders and Housing Index

Mar 24, 2009: 11:25 AM CST

A reader requested a look at the XLB Homebuilder SPDR ETF and I wanted to view that on the daily chart and also take a look at the Philadelphia Housing Index ($HGX) on the weekly frame.  Strength here would be most likely resoundingly positive for the broader stock market.  Let’s look.

XHB Homebuilders ETF:

We’ve had a good 40% move of the March lows and we’re coming into a potentially powerful trendline resistance at the $11 area (which also reflects the 20 week EMA).  It would be an extremely bullish sign for the broader market if the XHB can clear these overhead resistance levels (particularly if we see continued strength in the Financials).

Price is coming off a lengthy positive momentum divergence, and has already cleared the resistance via the 20 and 50 day EMAs and now could start to support on these levels if we get a positive EMA crossover which would then set-up the Cradle (support) Trade which would argue that a trend reversal to the upside would be taking place.

The angle of ascent into overhead resistance appears to be that perhaps of a corrective rally, so any downside action off the $11 level would certainly be expected – however, if price can sustain itself above these levels, it would be an immensely bullish sign, as strength in the Homebuilders could trigger a signal to bulls that it’s relatively safe to begin ‘bottom fishing’ at these levels.

Let’s check out the broader Housing Index (which is showing a similar structure and pattern to the XHB) on th weekly timeframe.

Philadelphia Housing Index ($HGX):

We still see that positive divergence of last year’s lows, and price has rallied recently into the falling 20 week EMA.  The Trend Structure and EMA structure still are as bearish as possible, so any rally would be deemed a counter-trend rally until we can crack the overhead resistance via the 20 and 50 EMAs… and/or if we are able to make a new swing high above the 95 level.

I did want to make a note for you to look at the angle of ascent from July to September 2008 which formed a massive bear flag and sent a ‘false positive’ buy signal (bull trap) as price breached the 50 week EMA to the upside at that point.  Trading counter trend, even at these levels, can be difficult and is often more risky than trading in the direction of the trend.

Let’s keep focusing on the Homebuilders and Financial Stocks (and ETFs) for signs of continued strength, because as many analysts have forecast, we can’t have a meaningful stock market bottom without strength in both of these battered-down segments.

1 Comment

One Response to “A Look at XHB Homebuilders and Housing Index”

  1. Anonymous Says:

    corey, thanks a ton for taking my request and as always doing a great job. i too believe that xhb would be a great bull ndicator if it can break that over head resistance.

    thanks – john