Demand for products and services across the home improvement sector has experienced a sharp increase over the past several months as people across the globe have found themselves fixed in place within their homes. In this article, we'll analyze several charts from across the sector and try to determine how active traders will be looking to position themselves over the weeks or months to come to profit from the rise in demand.
SPDR S&P Homebuilders ETF (XHB)
Buying new homes or renovating existing ones has been a trend that has captured the attention of many people across the globe since it seems to have been one of the few things that has been within the control of people during the COVID-19 pandemic. Taking look at the chart of the SPDR S&P Homebuilders ETF (XHB) below, you can see that the price of the fund has recently moved above the combined resistance of the horizontal trendline and its 200-day moving average.
The strong bounce from the March lows has triggered renewed interest by the bulls, and recent price action suggests that the momentum will likely resume the upward trajectory until major technical indicators suggest otherwise. Based on this pattern, short-term target prices will most likely be set near the 2020 high of $49.35, with stop-loss orders set below $41.78 in case of a sudden shift in market sentiment.
Williams-Sonoma, Inc. (WSM)
As the top holding of the XHB ETF, one of the companies that will be of specific interest to active traders is likely Williams-Sonoma, Inc. (WSM). As you can see from the chart below, the price has recently moved back above the 200-day moving average and has crossed above an influential trendline.
The recent surge in buying pressure has also triggered a bullish crossover between the 50-day and 200-day moving average, which is shown by the blue circle. This popular long-term buy signal will likely be noted by those who follow technical analysis, and from a risk-management perspective, stop-loss orders will most likely be placed below $65.82 in case of a sudden move lower.
Lowe's Companies, Inc. (LOW)
Another top holding of the XHB ETF that looks poised to make a move higher is Lowes Companies, Inc. (LOW). As you can see from the chart below, the strong bounce from the March lows has sent the price above the 200-day moving average, which in turn has triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle).
Followers of technical analysis will most likely expect the price of Lowe's to head higher from here. However, most will likely set stop-loss orders below $111.17 to protect against any sudden shifts in sentiment.
The Bottom Line
People around the world have been spending more time within their homes and looking for opportunities to improve them or make them more comfortable. As discussed above, homebuilders and companies within home improvement or specialty retail have seen a natural rise in demand for their products and services. Based on the charts shown above, it appears as though this increased demand could continue to send prices higher from here.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.