Stock Groups

Homebuilders close out worst week since January; traders weigh in


Friday was a bad day for homebuilders.

The XHB Homebuilder ETF which owns stocks like Home Depot and Lennar fell over 5% in the past week. It is now at its lowest point since January. That blow came despite better-than-expected data for the group – homebuilder confidence for DecemberIn the face of rising costs, prices rose. housing starts in November strengthened.

Miller Tabak’s chief market strategist Matt Maley is a believer in the long-term bull trend for homebuilders. But he warns of the danger of further pain in the near term.

On a shorter-term basis you can look at the chart. ITB [home construction ETFYou can see what’s known as the MACD chart. That’s a gauge of momentum. It’s had a great run, but now it’s losing steam,” Maley said to CNBC’s “.”Trading Nation“, Thursday.

He said that the MACD indicator was showing a “negative cross”. “We’ve had several of those in the last year and each time it was followed by a near-term pullback that lasted a couple of weeks and so what I’m really saying here is not so much that this is a disaster for the group by any stretch, but … you don’t want be chasing the group. You can let the group find you.

The Federal ReserveA cloud has also been cast over the group by future rate rises and possible tightening. Wednesday’s meeting at the central bank telegraphed the potential for three interest rate increases next year.

Gina Sanchez is the CEO of Chantico Global, and Chief Market Strategist at Lido Advisors. She doesn’t see rising rates as a significant headwind to her group.

This sector is highly sensitive to interest rate fluctuations, however there’s still a shortage of stock and housing demand will not slow down. Sanchez stated Thursday that rising lumber prices were not a new phenomenon. However, homebuilders have managed to overcome this and end up at higher levels than they did last summer.

Simpler Trading’s director of options, Danielle Shay sees several tailwinds that will help to offset rising rates.

We have a strong housing market. Low interest rates are still available for now. We are seeing a lot of millennials going out to buy homes. But, what’s most important is that we have huge gains in home equity. CNBC’s Shay said Wednesday that this is encouraging others to also invest in real property.

Shay is the main player in the group, including Home Depot, Lowe’s, D.R. Hortonand the XHB ETF. It plans to continue adding to these positions until 2022.

Quint Tatro of Joule Financial is betting on one particular homebuilder.

Toll is a favorite of ours. “I think this is the best breed. Tatro stated Wednesday that although it is the market leader in price action, it trades seven times more forward earnings and has a good balance sheet.”

Toll BrothersThe XHB ETF has seen a 58% increase in 2021. This is its highest annual growth since 2012. Comparatively, the XHB ETF has risen by 42%.

The reality is that even though we may see some increases in interest rates into 2022 the historic rate is still very low, and there is no way to predict how much housing demand will change. According to him, any decline in stocks would favour homebuilders more than retailers simply from a value standpoint.”

Disclosure: Simpler Trading has shares in Home Depot and Lowe’s. Horton.