Financial basis

Homebuilders end worst week since January; traders intervene

Homebuilders finished in the red on Friday.

The XHB homebuilder ETF, which owns stocks such as Home Depot and Lennar, fell more than 5% for the week, its worst streak since January. The hit came despite better-than-expected data for the group – homebuilder confidence for December rose in the face of rising costs, while housing starts in November strengthened.

Matt Maley, chief market strategist at Miller Tabak, believes in the long-term bull run for home builders. However, it sounds the alarm bells about the potential for more pain in the short term.

“In the short term, you look at the chart on the ITB [home construction ETF], you look at what’s called the MACD chart, and that’s a measure of momentum, and he’s had a great run here, but he’s starting to lose momentum, “Maley told” Trading Nation. ” from CNBC Thursday.

“This is what they call a negative crossover,” he said of the MACD indicator. “We have had several over the last year and each time this was followed by a short term setback which lasted for a few weeks and so what I’m really saying here is not so much that it is disaster for the group by any stretch, but… you don’t want to run after the group. Let the group come to you. “

The possible Federal Reserve tightening and future rate hikes also cast a cloud over the group. The central bank wired the potential for three interest rate hikes next year on Wednesday.

Gina Sanchez, CEO of Chantico Global and chief market strategist at Lido Advisors, does not yet see the rate hike as a major obstacle for the group.

“This sector is sensitive to interest rates, but there is still a huge shortage of inventory and therefore the need for housing will continue. And if you look at the last time we saw lumber prices go up, it was early summer. , home builders really ignored that and managed to finish at higher highs, ”Sanchez said Thursday.

Danielle Shay, director of options at Simpler Trading, sees several favorable winds leading the space to counter the threat of a rate hike.

“We have a very strong housing market right now. We still have low interest rates right now. We have millennials going to buy homes and most importantly, I mean, we are seeing massive increases in. home equity. And that also encourages people to invest in real estate, ”Shay told CNBC on Wednesday.

Shay owns the major players in the group, including Home Depot, Lowe’s, DR Horton and ETF XHB, and intends to build on those positions throughout 2022.

Quint Tatro, president of Joule Financial, is betting on a particular homebuilder.

“We love Toll. I think it’s best in class here. He’s obviously the leader when it comes to price action, but he trades seven times earnings forward and he has a decent track record. “Tatro said Wednesday.

Toll Brothers rose 58% in 2021, its best year since 2012. The XHB ETF, by comparison, climbed 42%.

“The reality is that even though we see some hikes through to 2022, historic interest rates are still extremely low and the demand for housing is just not going to go away. So I think any pullback in those inventories, we would favor. really home builders versus retailers fair from a valuation standpoint, ”he said.

Disclosure: Simpler Trading owns shares of Home Depot, Lowe’s and DR Horton.