Trade Safely creates signals on all assets and classes and that includes ETF’S. When such a call to action occurs, we like to drill down and see how the main components of that ETF are performing. This helps to qualify and give depth of conviction to trade. Home Builders, House Building is an ETF that has come into focus this week.
The first building block is the creation of true support and resistance. Think of this as the foundations to a house. How many times do a piece of analysis reference some previous high or low as a support or resistance, without any quantification or calculation about whether that high or low has any real relevance. The reality is that some previous highs or lows have far more relevance and that relevance will also be higher the the higher the time frame it is referencing.
The studies Peak Expansion and Peak Energy measure the relationship to range and volume on any swing or fractal point and compare that to an average of those values over the previous 1000 bars. Only if they breach a threshold of what that average is by a certain percentage will that swing pattern of fractal be deemed to be important. It should also be referencing higher time frames than the one being viewed so for a daily chart and the Trade Safely methodology it is weekly and monthly levels.
The first chart shows these lines on the ETF XHB itself. Note the four times that price has stopped within the qualified support and resistance points.
Home Builders 1
Trade Safely can only instigate signals at these qualified points via a variety of studies and code. These include BullWhip, BearCage, Powwerplay,Slammdunk, Time Continuation, Ufo and Pops, all of which can be placed on the chart as well if preferred. Trade Safely itself will simply place a Blue Triangle above or below the Candle and provide a Pink Protection line so risk can be calculated.
XHB now has those signals placed on the chart. The red numbers provide partial profit taking points and a brown trailing stop also appears as the trade develops.
Home Builders 2
Now that we have received a negative signal on the sector it’s time to look at some of the main components. This only takes a few seconds per stock. The first is DHI which gapped higher on its last set of results but now is approaching its first major resistance line.
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Next is LEN. This is a very similar chart but an area of resistance is more adjacent.
Home Builders 4
Next is PHM. Previously it held the two major support points and rallied strongly, but now it has stalled just ahead of a major overhead resistance zone.
Home Builders 5
NVR has been on an impressive run and now finds itself right the final resistance point that jumped to the top of the trend a few days ago
Home Builders 6
Next is TMHC. Note how is stalled perfectly on two occasions in the recent past and has been under-performing against its peers.
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KBH has been trapped and has consistently failed at the same spot.
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The most impressive stock in the Sector is TOL. Their results came out this week and price gapped through its final barrier.
Home Builders 9
The only other leader is MDC. This has also popped its head higher and is trying to build a higher trend.
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The sector also has some stocks that are already performing poorly. Thus far MTH has held it s nearest support point but a close below it on a weekly basis would indicate a slide to last year lows point at least.
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LGIH is the weakest of all in the housde building sector gapping lower before staging a minor recovery, although the trend remains down.
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In conclusion the breakdown of the sector reveals that the majority of it components are at or very close to major resistance points that will be difficult to overcome. The two strongest stocks will have to maintain there momentum in order to hold the sector up.
Please note this is general advice from Trading Safely for all our clients and has been prepared without taking into account your personal objectives, financial situation or needs. If you do wish to consider acting on our information please contact a licensed financial advisor to discuss the appropriateness of this recommendation for your own personal financial circumstances. Please obtain any relevant product disclosure documents before deciding to invest. Trading derivatives, stocks and CFDs can lead to losses greater than your deposit.