Are Shares Of Home Builders Building Something?

Published on Tuesday, 19 June 2012 22:33 Written by Todd Shriber

To say real estate data has been hit or miss this year is an accurate statement, if not an understatement. And to say the U.S. economy needs more real estate hits than misses is also an understatement because residential real estate and the direct and indirect jobs that industry accounts for are integral cogs in the wheel of U.S. economic growth.

Fortunately, there are some signs of life in the residential real estate universe. Just check out the data from June 19. In economic news, the Commerce Department said housing starts fell 4.8% to a seasonally adjusted annual rate of 708,000. The April number was revised higher to a seasonally adjusted annual rate of 744,000. New construction rose 28.5% last month from May 2011.

By no means does one day of decent data, and that’s really all it was was decent, say the residential real estate malaise in this country is over. However, that data point was enough to lift the SPDR S&P Homebuilders ETF (NYSE: XHB) by 1% and the iShares Dow Jones US Home Construction Index Fund (NYSE: ITB) by 1.4%.

The SPDR S&P Homebuilders ETF and the rival iShares Dow Jones US Home Construction Index Fund both started the year on fire, but both have had their share of struggles over the past two months, moving in fits and starts.

The iShares Dow Jones US Home Construction Index Fund, which is more heavily allocated to homebuilders, is now just pennies away from $16, an important technical area where the ETF twice tried, but failed to conquer. A third failure would signify a triple top, a technical event that while not rare, is infrequent enough to indicate sellers could really sink their teeth into ITB. If that happens, support at $14 would almost certainly be tested and the $200-day moving average at $13 could come into play.

The SPDR S&P Homebuilders ETF is a tad stronger than its iShares rival on a technical basis. XHB has cleared some resistance around $20.75 and now has a clear runway to $22. The ETF briefly traded above that level in May before collapsing to the $19 area earlier this month.

The $18-$19 range should provide firm support for XHB, but if $18 gives out, the ETF is easily on its way back to $16. XHB’s higher exposure to the discretionary retail side of residential real estate makes the fund the preferred option on the way up and the one to avoid on the way down. Just something to consider.