ETF Close-Up: Homebuilders (XHB)

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie for ETF Digest

NEW YORK (ETF Digest) -- Homebuilders? Really? You're kidding, right? Didn't they all pawn their tools and move into their mother's basement a few years ago?

Okay, maybe not homebuilders. How about apartment builders or condo renovators?

According to RealtyTrac, there have been nearly 3 million mortgage defaults annually since 2007. Currently there's an estimated 3 million "squatters" (remaining in their homes and long delinquent in payments). Physics states that for every action, there's an opposite and equal reaction. So it is with the housing market collapse -- a rental market emerges. All these people have to live somewhere. (Might explain the rise in car sales, but that's another report). Fact is that they're renting.

Apartment buildings are being built. Condos are being converted into apartments. Those who have conceded they're going to have to remain in their homes forever are upgrading and renovating. The few that are buying homes on the cheap are often doing complete makeovers on them. Homebuilders are getting the work. This is confirmed by construction materials and durable goods sellers like Lowes(LOW) and Home Depot(HD) having very healthy earnings reports.

Let's take a look at the Homebuilders (XHB) Daily Chart:

The past three months have been the strongest gain in the Homebuilders since the 2009 bottom. Although this ETF has struggled at the $17 resistance, it has held the 50 DMA on pullbacks and is now above the 200 DMA. Buyers moved the price crossing the upper trend line on increased volume. Recent sells have been in line with the overall market and not excessive. Even with the big sell off in the last hour of trading in 2011, we held the upper trend line support.