
Don’t Count on Homebuilders, Regional Banks to Bail Out the Recovery
NEW YORK (TheStreet) -- Recent housing data have been neutral; as a result, shares of homebuilders and the banks that lend money to housing industry have been extremely volatile. In this environment its time to rely on technical charts.
To smooth out stock-specific volatility investors should trade these three exchange-traded funds. The iShares U.S. Home Construction ETF (ITB) - Get Report has 44 components 65% weighted to homebuilder stocks.
Community banks provide developers and homebuilders funding under the category called construction and development loans. The First Trust Nasdaq ABA Community Bank Index Fund (QABA) - Get Report has 140 publicly traded community banks as components. These banks are among the 359 components of the ABA Community Bank Nasdaq Index. Before the financial crisis the number of community banks in this index was limited to 500, and there was a waiting list to join.
Regional banks provide mortgage loans and home equity lines of credit. The iShares U.S. Regional Banks ETF (IAT) - Get Report has 58 components but does not include the four "too be to fail" money center banks.
Before profiling the weekly charts for the three exchange-traded funds that represent these industries let's look at the Case-Shiller home price index and new home sales.
The Case-Shiller 20-City Composite chart below shows that home prices rose by 5% year over year in July and slipped by 0.2% sequentially. From the peak in mid-2006 the index is down about 12% and up 35% since the low in March 2012. This is a re-inflated housing bubble. The index is at 181.90 versus 100.00 in December 2000, so the price of a home is up 81.9% over the last 14.5 years.
Here's a chart of median household incomes from the U.S. Census Bureau. Note that median income in the United States peaked in 1999 and is down 7.2% since then to $53,657 making it next to impossible for an American family to afford a home.
Even with this troubling statistic new home sales for single-family homes rose 5.7% in August to a seasonally adjusted annual rate of 552,000 units. Builders are gradually adding inventory to meet expected demand. The inventory of new homes was 216,000 units in August, a 4.7-month supply at the current sales pace. Note that the pace of new home sales is not robust enough to provide an economic stimulus.
Here's the weekly chart for the home construction ETF.
Courtesy of MetaStock Xenith
The home construction ETF had a close of $26.45 on Thursday, up 2.2% year to date but in correction territory 11.4% below its multiyear intraday high of $29.86 set on Aug. 18.
The weekly chart profile is negative, with the ETF below its key weekly moving average of $27.55 with its weekly momentum reading projected to decline to 66.40 this week down from 69.77 on Sept. 25. The trend above the 200-week simple moving average began during the week of Jan. 13, 2012 with the average at $12.50, which is now up to $22.31 as the longer-term reversion to the mean.
Investors looking to buy the home construction ETF should place a good until canceled limit order to buy the ETF if it drops to the 200-week simple moving average which is rising at $22.31.
Investors looking to sell the home construction ETF should place a good until canceled limit order to sell the ETF if it rises to $28.79, which is a key level on technical charts until the end of 2015.
Here's the weekly chart for the community bank ETF.
Courtesy of MetaStock Xenith
The community bank ETF closed at $38.17 on Thursday, up 3.9% year to date and 8.4% below its multiyear intraday high of $41.66 set on July 17.
The weekly chart will shift to positive if the ETF closes Friday above its key weekly moving average of $38.10. The weekly momentum reading is projected to rise 38.85 this week up from 37.89 on Sept. 25. The 200-week simple moving average lags as the reversion to the mean of $31.59.
Investors looking to buy the community bank ETF should place a good until canceled limit order to buy the ETF if it drops to $36.51, which is a key level on technical charts until the end of 2015.
Investors looking to sell the community bank ETF should place a good until canceled limit order to sell the ETF if it rises to $41.82, which is a key level on technical charts until the end of 2015.
Here's the weekly chart for the regional bank ETF.
Courtesy of MetaStock Xenith
The regional banks ETF had a close of $33.63 on Thursday, down 3.6% year to date and in correction territory 11.3% below its multiyear intraday high of $37.99 set on July 23.
The weekly chart is neutral with the ETF below its key weekly moving average of $34.46 but with weekly momentum projected to rise to 59.16 up from 58.45 on Sept. 25. The 200-week simple moving average lags as the reversion to the mean of $30.02.
Investors looking to buy the regional banks ETF should place a good until canceled limit order to buy the ETF if it drops to the 200-week simple moving average which is rising at $30.02.
Investors looking to sell the regional banks ETF should place a good until canceled limit order to sell the ETF if it rises to $38.19, which is a key level on technical charts until the end of October.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.














