At an interesting juncture, the Home Construction ETF has broken two parallel lines of resistance as noted in the chart below.
In recent weeks, the ETF, which tracks home builders, has struggled to break above the resistance, yet the break finally came through Tuesday on above average volume. This is a move that could point to further downside for the underlying group, as there now appears to be little inbetween the ETF and an all-time high.
With the ETF and homebuilders in general, the backdrop at the macro level bodes well. The housing market continues to strengthen, with mortgage rates currently near historic lows, and the Labor Department’s monthly jobs report showed strong employment gains through July. Yet the ETF and the group of homebuilders it tracks appear disconnected from the underlying strength.
Nevertheless, if the ETF continues to move higher and reaches an all-time high, it could provide a path of least resistance to the north for the underlying group of homebuilders.
At the same time, however, certain homebuilders have struggled. A notable example is Lennar, which reported weaker than expected earnings in late July. Lennar’s share price has since moved lower.
For now, the ETF’s break of the two resistance lines indicate that the underlying group of homebuilders are more likely to move lower than higher in the near term. The ETF’s setup implies that the group is under pressure and could be ready for further downside.
With Wednesday’s trading action and further economic updates, investors should keep an eye on this ETF and the homebuilders it tracks for insights into whether the underlying group is ready for further upside or downside. For now, the risks appear to be to the downside.
At an interesting juncture, the Home Construction ETF has broken two parallel lines of resistance as noted in the chart below.
In recent weeks, the ETF, which tracks home builders, has struggled to break above the resistance, yet the break finally came through Tuesday on above average volume. This is a move that could point to further downside for the underlying group, as there now appears to be little inbetween the ETF and an all-time high.
With the ETF and homebuilders in general, the backdrop at the macro level bodes well. The housing market continues to strengthen, with mortgage rates currently near historic lows, and the Labor Department’s monthly jobs report showed strong employment gains through July. Yet the ETF and the group of homebuilders it tracks appear disconnected from the underlying strength.
Nevertheless, if the ETF continues to move higher and reaches an all-time high, it could provide a path of least resistance to the north for the underlying group of homebuilders.
At the same time, however, certain homebuilders have struggled. A notable example is Lennar, which reported weaker than expected earnings in late July. Lennar’s share price has since moved lower.
For now, the ETF’s break of the two resistance lines indicate that the underlying group of homebuilders are more likely to move lower than higher in the near term. The ETF’s setup implies that the group is under pressure and could be ready for further downside.
With Wednesday’s trading action and further economic updates, investors should keep an eye on this ETF and the homebuilders it tracks for insights into whether the underlying group is ready for further upside or downside. For now, the risks appear to be to the downside.
