After listening to Federal Reserve Chair Jerome Powell’s press conference this week, my main takeaway was that short-term rates will definitely be coming down through the course of 2024, and I should focus on areas of the market that would benefit from easier money for consumers. Assuming mortgage rates also come down over the next 12 months, this could create a perfect environment for homebuilders to thrive. The charts back that up. The weekly chart of the iShares U.S. Home Construction ETF (ITB) shows how the long-term trend has become quite strong off the October 2022 low. While the S & P 500 made a lower low in October 2022, you’ll see that ITB actually made its ultimate low in June 2022. The higher low in October was a sign of accumulation, showing that the bearish momentum going into the summer had begun to dissipate. Now we see the ITB in a confirmed uptrend, above two upward-sloping moving averages. The PPO indicator (percentage price oscillator – bottom panel) is a simple trend-following device based on exponential moving average, and also remains in a bullish phase as long as the PPO line (black) remains above the signal line (red). Zooming into recent price action on the daily chart, we can see the ITB is making another new 52-week high this week after establishing a higher swing low around $107. The real story here is that the breakout in December 2023 was just the beginning of a new upswing. Once this ETF broke above its July 2023 high, it traded higher to a price gap in December of last year. Any time a chart like ITB settles into a consolidation range, with clearly defined support and resistance levels, it’s really a waiting game to see which way the price will break first. In this case, the homebuilder ETF resolved this pattern to the upside in late February with a break above $105. Now we have a chart making higher highs and higher lows, momentum that is strong but not excessive, and improvement in relative strength which means this ETF is beginning to outperform the S & P 500. What’s the risk? The broader market has already logged decent gains in 2024, and if investors rotate to a more risk-off positioning, then stocks like homebuilders could certainly feel the pain. I’d keep watch on the weekly chart of ITB for this particular thesis, and as long as the weekly PPO remains bullish, that would tell me that the bullish trend is still very much intact. ITB 1Y mountain iShares U.S. Home Construction ETF, 1 year With constructive setups on the daily and weekly charts, along with an interest rate environment that could be more supportive of the names in this group, homebuilders may provide an excellent opportunity into Q2 and beyond. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
