Thursday, May 17, 2012

Housing Update: XHB, ITB vs. SPY, DIA, QQQ, IYT, XLF (Charts)

House Attack, Vienna (via weburbanist)
Even though KB Home (KBH), Hovnanian (HOV), and other levered housing stubs have been under pressure as of late (or for years now), the homebuilding and construction ETF's XHB and ITB have been holding up quite well during the recent market selloff. I put up charts of XHB and ITB, and XHB and ITB versus SPY, DIA, QQQ, IYT, and XLF.

ITB (black line) and XHB (blue line) haven't followed the severity of the selloff. It seems like the homebuilding ETFs have been pricing in less-bad housing data and the possibility that homes will become a "non-depreciating asset" in the next few years. ITB is still down 75% from its 2005 peak. Home prices continue to make new lows, albeit at a slower rate, while foreclosure inventory remains near historic highs and the unemployment rate is at  8.1 8.4%, in real terms. The new REO-to-rental (real estate owned-to-rental) programs at the TBTF banks and GSEs could help support prices, but "Goldman Sachs sees three huge obstacles to the program's success." On a final note, on Pandora Radio today I heard two ads on house flipping, and I noticed that Vanilla Ice is deep in the game.

Now to the charts. How does the gap close between ITB and the rest of the market? Is housing in its own world?

XHB is testing the $22.5 resistance level from 2008, which could be a breakout trade at some point. XHB is currently trading at $21.06, and it managed to break above the 2010-2011 highs ($19.22 avg) at the beginning of 2012. The rising 50 week moving average is almost at that level as well. If housing and construction stocks correct here, $19 is probably a decent place to protect longs from a breakdown. You never know, JPMorgan and all of its TBTF counterparties could go under because of CDX.NA.IG basis explosions (1->2). That would halt lending.

ITB still hasn't officially broken above the 2010 high yet ($15.57). It pierced through that level, spiked to $16.30, but ultimately failed. It could try again though, we'll see. I also see that the 50 week moving average crossed above the 200 week moving average. The last time they crossed was at the end of 2006/beginning of 2007, and that was to the downside. If ITB can't breakout here, it will continue to trade in that three year sideways range.

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