Homebuilders might be the most optimistic people around. Despite a precipitous drop in new home sales in January and assorted other kicks to the chest, homebuilder exchange traded funds (ETFs) have slowly but surely emerged to become one of the top sectors of 2010.
While it hasn’t been a smooth upward trajectory, iShares Dow Jones U.S. Home Construction Index Fund (NYSE: ITB) is now touting a year-to-date return of 7.3% and SPDR S&P Homebuilders (NYSEArca: XHB) is up 5.3% this year. Earnings season has been kind to homebuilder stocks, thanks to reports from companies like Lennar Corp (NYSE: LEN), which finally notched profits after two years of losses, says John Spence for The Wall Street Journal. [Real Estate: A Sector on the Mend?]
Just because these funds have been standouts doesn’t mean that they will continue to be. After all, the U.S. housing market is still in a shambles and the recovery could continue to see its fair share of ups and downs in the forms of foreclosures, the winding down of tax breaks and the worst job market in years. [Why the Sector Has Growing Room.]
To find those areas trending up, a simple strategy we suggest is the 200-day moving average; getting in when a fund crosses the line will ensure you’re there in time for any potential long-term uptrend, while having a stop loss will help you put a cap on your losses. Read more about trend following in The ETF Trend Following Playbook.
For more stories about homebuilders, visit our homebuilders category.
- SPDR S&P Homebuilders (NYSEArca: XHB)
- iShares Dow Jones U.S. Home Construction Index Fund (NYSEArca: ITB)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.