Selling the Buying in the Builders
For all the attention the banks and semiconductor stocks have been getting in the first month of the year, the performance by the homebuilders truly deserves special mention.
But with the SPDR S&P Homebuilders ETF (NYSE: XHB) trading down more than 2% after rallying to new, 52-week highs, short-term traders may be in more of a mood to begin monitoring the market for further weakness.
That investors would be in a profit-taking mood in XHB is no surprise. The ETF last traded in oversold territory in late December as part of a three-day pullback shortly after the fund rallied back above its 200-day moving average. And even with Friday’s 2% pullback, XHB is trading more than 12% from the low point of its December correction.
Heading into trading on Monday, shares of XHB are on pace to open with neutral, 5 out of 10 ratings, despite finishing technically oversold after Friday’s drop. Additional selling in the ETF almost certainly will boost the ratings for the fund, which currently has a short-term, negative edge of just over 1%.
What stocks should traders be watching as investors take profits in XHB? A number of homebuilding stocks finished lower for a second day in a row on Friday and could be among the first to trade in oversold territory next week if sellers remain in control. These stocks include KB Home (NYSE: KBH), which climbed back into bull market territory in the first half of the month and has since rallied to its highest level since July.
Another stock where the balance between buyers and sellers has begun to tip toward the latter is Lennar Corporation (NYSE: LEN). Shares of LEN were down more than 2% on Friday, trading lower for a second day in a row after rallying to new, 52-week highs earlier in the week.
Shares of KBH have a small, short-term edge of less than half a percent. Lennar, by contrast, will take a positive edge of more than three quarters of a percent into trading on Monday.
Want more stocks? Read our latest from 7 Stocks You Need to Know: Volatility and Visa’s New High.
David Penn is Editor in Chief of TradingMarkets.com