Top Holdings of Homebuilders ETF Are Poised for Gains

Strong demand for products offered by companies in sub-industries within the homebuilder sector is a theme that is capturing the attention of many active traders. More specifically, rising momentum in segments such as building products, home furnishings, home improvement retail, household appliances, and heating and cooling suggests that this group could be well-positioned to move higher over the weeks and months ahead.

In this article, we will look at some charts from across the sector to get a better sense of how traders will be attempting to trade the move higher.

Key Takeaways

  • Sub-industries within the homebuilders sector such as home furnishing, household appliances, and heating/cooling look well positioned to move higher in 2021.
  • Recent breaks beyond resistance levels suggest that the next leg higher is just getting underway.
  • Support from trendlines and long-term moving averages will likely be used by traders to determine the placement of stop-loss orders in case of a sudden shift in sentiment.

The SPDR S&P Homebuilders ETF (XHB)

Many traders interested in gaining exposure to niche market segments such as household applications need to turn to broader sector-related exchange traded funds (ETFs) such as the SPDR S&P Homebuilders ETF (XHB). In the case of XHB, the combination of the home furnishing retail, home furnishings, and household appliances sub-industries represents 22.03% of the fund's holdings.

In the chart below, you can see that the price has been steadily trending higher since bouncing from the March lows. You will likely notice that the dotted trendlines on the chart have acted as strong 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 is just getting underway. Based on the pattern, we would expect followers of technical analysis to place buy orders as close to current levels as possible and protect against a sudden selloff by placing stop-loss orders below $57.12.

Chart showing the share price performance of the SPDR S&P Homebuilders ETF (XHB)

Williams Sonoma, Inc. (WSM)

As one of the top holdings of the XHB ETF, Williams Sonoma, Inc. (WSM) will likely be of particular interest to traders. Looking at the chart below, you can see that the price has recently moved beyond the resistance of its 2020 swing high, shown by the blue circle, and that now there are no resistance levels standing in the way of a move higher. Followers of technical analysis will also likely want to note the crossover between the moving average convergence divergence (MACD) indicator and its signal line because it is an indication that the bulls are in control of the momentum and that the next leg higher could just be getting underway.

Chart showing the share price performance of Williams Sonoma, Inc. (WSM)

Leading homebuilder stocks have recently moved toward all-time highs. Fundamental data points have continued to reveal healthy buying interest and tightening supply in the housing market despite the ongoing pandemic. 

Johnson Controls International plc (JCI)

Another top holding of the XHB ETF that could capture the attention of traders over the weeks ahead is Johnson Controls Intl plc (JCI). In the chart below, you can see that the dotted trendlines have again acted as strong guides for trend traders. The recent breakout suggests that the bulls are in control of the momentum and that prices are likely headed higher.

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

Chart showing the share price performance of Johnson Controls International plc (JCI)

The Bottom Line

Sub-industries within the homebuilder sector such as home furnishings, household appliances, and heating/cooling are experiencing a surge in demand, As a result, share prices look poised to move higher in 2021. From the perspective of an active trader, nearby levels of support and recent breakouts beyond key levels of resistance are combining to create lucrative risk/reward scenarios for those looking to trade this underfollowed market segment.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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