Saturday, August 17, 2013

Wednesday’s ETF Chart To Watch: XHB Flirting With ...

5 Best Small Cap Stocks To Invest In 2014

Stocks gave into bearish pressures on Tuesday as mixed earnings reports from industry bellwethers clouded the headlines. Disappointing results from Coca-Cola mixed with hawkish comments from Kansas City Fed President Esther George prompted many to lock-in profits ahead of Fed Chairman Bernanke's testimony to Congress taking place later today through Thursday .

Our ETF to watch for today is the SPDR Homebuilders ETF which could experience volatile trading as investors react to the latest housing market data. Analysts are expecting for June housing starts to come in at 950,000, which would mark a healthy jump from the previous month's reading of 914,000.

Chart Analysis

Consider XHB's one-year daily performance chart below. This ETF has staged an encouraging rebound since bouncing off its 200-day moving average (yellow line) on 6/24 following the Fed stimulus-fear induced sell-off which began on 5/22/2013. While the recent rally is by all means a positive for the security, investors should be aware of a potentially worrisome technical pattern at hand; notice how XHB has posted lower-highs and lower-lows since peaking at $32.69 a share. XHB is undeniably still in a strong uptrend from a long-term perspective, however, the recent trend of lower-highs may suggest that fewer buyers have been stepping in after each pullback, which could signal a potential trend reversal .

Click to EnlargeWe advise conservative investors to wait and see how XHB behaves around its upcoming support at the $30 level before jumping in long here .

OutlookIf the latest housing starts data comes in above expectations, XHB should have the wind at its back for the day; in terms of upside, this ETF has upcoming resistance around $32 a share. On the other hand, disappointing data can inspire another sell-off in the homebuilders sector; in terms of! downside, this ETF has immediate support at $30 a share followed by the $28 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.

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