Investors seeking market exposure to the housing market and banking system can do so without picking individual stocks by trading these three exchange-traded funds.
The iShares U.S. Construction ETF (ITB) - Get Report consists of 44 stocks involved in home construction and homebuilding. D R Horton (DHI) - Get Report and Lennar (LEN) - Get Report are the largest components with weightings of 12.28% and 11.22%, respectively.
The iShares U.S. Regional Banks ETF (IAT) - Get Report consists of 54 bank stocks and super regional banks, US Bancorp (USB) - Get Report and PNC Financial (PNC) - Get Report are the top two holdings with weightings of 17.1% and 10.9%, respectively. Note that the four "too big to fail" money center banks are not components of this ETF.
Before we look at the weekly charts and key levels for these ETFs, let's look at the most recent housing market data.
Here's the latest S&P Core Logic Case-Shiller Indices.
The key 20-City Composite had a year-over-year seasonally-adjusted rise of 5.1% in October, up from 5% in September. The month-over-month gain was higher by 0.6% versus 0.4% in September. From the July 2006 peak to the March 2012 trough, prices were down 35.1%. From the trough to the current level home prices are up an unsustainable 43.1% and just 7.1% below the peak.
This chart above shows new home sales for November. New home sales rose in November to a seasonally-adjusted annual rate of 592,000 units, up from 563,000 in October. This chart clearly shows that the sales pace for new homes is significantly below potential.
The chart above shows existing home sales for November. This broader measure of home sales rose to a seasonally adjusted annual rate 5.61 million units up from 5.57 million units in October. Continuing a trend above the 5.5 million sales rate is the important milestone to track, as this level had been a ceiling since 2009, well below pre-crash levels.
Home prices still appear to be too high relative to income growth, and mortgage rates have moved above 4%, this should put a cap on both home prices and home sales.
Below are the weekly charts and key levels for the three ETFs.
The weekly chart shows a red line through the price bars, which is the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean."
The study in red along the bottom of the charts is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold.
A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00. A positive weekly chart shows the stock above its key weekly moving average with weekly momentum rising above 20.00 in a trend towards 80.00.
Here's the weekly chart for the home construction ETF.
Courtesy of MetaStock Xenith
The construction ETF trades close to $28, up 7.3% since the presidential election. ITB is 5.6% below its post-election high of $29.26 set on Dec. 8.
The weekly chart for ITB shifts to negative if the ETF ends this week below its key weekly moving average of $27.62. This would indicate risk to its 200-week simple moving average of $25.48, which is the "reversion to the mean". The weekly momentum is projected to slip to 62.01 this week down from 63.10 on Jan. 6.
Investors looking to buy the home construction ETF should buy weakness to $25.48, which is the 200-week simple moving average. Investors looking to reduce holdings should sell strength to $28.72, $28.81, $31.07 and $32.61, which are key levels on technical charts until the end of January, March, June and 2017, respectively.
Here's the weekly chart for regional bank ETF.
Courtesy of MetaStock Xenith
The regional bank ETF trades at $45, up 22.6% since the election, and 2.2% below the Jan. 3 intraday high of $46.22.
The weekly chart for IAT is positive but extremely overbought with the ETF above its key weekly moving average of $43.96 and above its 200-week simple moving average of $33.73. The weekly momentum reading is projected to rise to slip to 94.13 this week down from 94.85 on Jan. 6, with both readings well above the overbought threshold of 80.00.
Investors looking to buy IAT should buy weakness to $42.14, $39.38 and $38.46, which are key levels on technical charts until the end of January, the end of 2017 and the end of March, respectively. 2016. Investors looking to reduce holdings should consider selling strength to $48.17, which is a key level on technical charts until the end of June.
Here's the weekly chart for the community bank ETF.
Courtesy of MetaStock Xenith
The community bank ETF trades at close to $52, up 24.1% since the election, and 4.6% below its intraday high of $54.28 set on Dec. 12.
The weekly chart for QABA is positive but overbought with the ETF above its key weekly moving average of $50.74 and well above its 200-week simple moving average of $36.70. The weekly momentum reading is projected to slip to 88.50 this week down from 89.83 on Jan. 6, with both readings above the overbought threshold of 80.00.
Investors looking to buy QABA should do so on weakness to $49.49 and $46.63, which are key levels on technical charts until the end of January and the end of March, respectively. Investors looking to reduce holdings should do so on strength to $54.80, which is a key level on technical charts until the end of June.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.