Top Holdings of Homebuilders ETF Are Poised for Gains

The strong demand for products offered by companies in sub-sectors of the residential construction sector is a theme that captures the attention of many active traders. Specifically, growing momentum in segments such as building products, home furnishings, home improvement retail, home appliances, and heating and air conditioning suggests that this group may be well positioned to grow over the coming years. weeks and months to come.

In this article, we will look at some charts from across the industry to get a better idea of ​​how traders will attempt to trade the upward move.

Key points to remember

  • Homebuilder sub-industries such as furniture, appliances and heating/cooling look well positioned to grow in 2021.
  • Recent breakouts past resistance levels suggest the next leg higher is just beginning.
  • Support from trendlines and long-term moving averages will likely be used by traders to determine the placement of stop-loss orders in the event of a sudden change in sentiment.

The SPDR S&P Homebuilders ETF (XHB)

Many traders wanting exposure to niche market segments such as domestic applications should look to exchange-traded funds (ETFs) tied to a broader sector, such as the SPDR S&P Homebuilders ETF (XHB). In the case of XHB, the combination of home furnishings, home furnishings and appliance retail sub-industries represents 22.03% of the fund’s holdings.

In the chart below, you can see that the price has steadily risen since bouncing back from the March lows. You will likely notice that the dotted trend lines on the chart have served as solid guides for traders over the past eight months. The recent breakout, as shown by the blue circle, suggests that the next leg of the uptrend has only just begun. Based on this pattern, we would expect technical analysts to place buy orders as close to current levels as possible and protect against a sudden sell-off by placing stop-loss orders below $57.12.

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Williams Sonoma, Inc. (WSM)

As one of the top holdings of the XHB ETF, Williams Sonoma, Inc. (WSM) is likely to be of particular interest to traders. Looking at the chart below, you can see that the price has recently broken through the resistance of its swing high of 2020, shown by the blue circle, and there are no more resistance levels coming through. oppose an increase. Followers of technical analysis will probably also want to note the crossover between the Moving Average Convergence Divergence (MACD) indicator and its signal line, as this indicates that the bulls are in control of the momentum and the next leg higher could just become ongoing.

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Shares of major homebuilders have recently reached all-time highs. Fundamental data points continued to reveal healthy buying interest and tighter supply in the housing market despite the ongoing pandemic.

Johnson Controls International plc (JCI)

Johnson Controls Intl plc (JCI) is another prominent XHB ETF stock that may catch traders’ attention in the coming weeks. In the chart below, you can see that the dotted trendlines have once again acted as solid guides for trend traders. The recent breakout suggests that the bulls are in control of momentum and prices are likely on the upside.

As confirmation, followers of technical analysis will probably also want to take note of the bullish cross between the MACD indicator and its signal line, which suggests that prices are heading higher. From a risk management perspective, stop-loss orders will likely be placed below one of the dotted trend lines depending on risk tolerance and investment horizon.

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The essential

Sub-industries of the home building sector such as furniture, appliances, and heating/cooling are seeing a surge in demand. As a result, stock prices are expected to rise in 2021. From an active trader’s perspective, near support levels and recent breakouts beyond key resistance levels combine to create lucrative risk/reward scenarios. for those looking to trade this under-tracked market segment.

At the time of writing, Casey Murphy did not hold any positions in any of the assets mentioned.