Homebuilder ETFs Reach Important Junctures

Some investors believe President Trump will follow through on campaign promises to reduce corporate taxes, cut back on regulations and throw billions of dollars into the U.S. economy. However, the expansionary rhetoric has caused the Federal Reserve to tighten its monetary policy, which could push up mortgage rates. Since Election Day, ITB and XHB have been among the hottest “Trump trades.”

“One of the most important is the halfway mark, or a 50% retracement. This month was the first time since the housing bubble burst that the Dow Jones U.S. Select Home Construction Index scored a weekly close above this threshold,” reports Michael Kahn for Barron’s.

ITB tracks the Dow Jones U.S. Select Home Construction Index while XHB follows the S&P Homebuilders Select Industry Index. While the breakout of that retracement is encouraging, ITB and XHB could be ready to pullback in the near-term.

“Both the Dow Jones index and the iShares ETF now sport a tired-looking configuration on their charts with momentum indicators fading. Given their strong rallies since November, it does look to be time to expect a short-term pullback,” according to Barron’s. “For the Dow Jones index, that could be a dip down to test the breakout level seen earlier this month. That would only be a 4% decline from current trading. With the evidence we have on the charts, it would be a likely place to buy the dip.”

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