It may seem counterintuitive to the broader market movements of late, but homebuilder stocks are one of the few segments of the market that has been able to counter the selling pressure. In the paragraphs below, we'll take a look at a few charts from across the homebuilders sector and try to determine how active traders will be looking to position themselves over the final few months of 2019.
SPDR Homebuilders ETF (XHB)
For those looking to gain exposure to the niche segment known as the homebuilders, one of the most popular exchange-traded funds that is designed to track the group is the SPDR S&P Homebuilders ETF (XHB). Fundamentally, the ETF comprises 35 holdings from business areas such as building products, home furnishings, home improvement retail, home furnishings retail, and household appliances.
As you can see from the chart below, the price has been trading within a defined range for much of 2019. The dotted trendlines have provided active traders with clear guides for placing their buy and stop orders, and the close proximity to the lower trendline suggests that the bulls are gearing up to add to their positions. From an active trader's perspective, buy orders will be placed as close to the lower trendline as possible, and short-term targets will be placed near the upper trendline, which is currently near $45. From a risk management perspective, stop-loss orders will most likely be placed below the 200-day moving average (red line) to protect against a sudden shift in market sentiment.
Lowes Companies, Inc. (LOW)
A strong quarterly earnings report from Lowes Companies, Inc. (LOW) has put the stock back onto the radar of active traders. As you can see below, the breakout above the July high, shown by the blue circle, clearly puts the momentum in favor of the bulls. Based on the chart pattern, followers of technical analysis will likely set their target prices near $120, which is equal to the entry point plus the height of the pattern.
The Home Depot, Inc. (HD)
For trend traders, another favorite company at the moment is The Home Depot, Inc. (HD). As you can see from the chart below, the price has been trading between the support and resistance of the dotted trendlines since the start of 2019. This chart is a clear example of how trendlines can predictably influence the price of a stock. Based on this history, trend traders would expect the support and resistance of the trendlines to hold and will likely want to wait for a pullback toward $202 before adding to their positions.
The Bottom Line
During times of market volatility, active traders often turn toward segments known for stability such as precious metals, utilities, and financials. While the cyclical nature of homebuilders makes it a favorite of active traders, the economic outlook is naturally enough of a reason for concern. However, based on the charts discussed above, it looks as though the uptrends are stronger than many expected and that they are likely to continue.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.