NEW YORK (TheStreet) -- There are three ways to trade the housing sector -- directly through trading homebuilder stocks, and indirectly by trading the community banks and regional banks that finance the industry.

The housing market looks like a re-inflating bubble. Home prices have been rising by 4.9% year over year in May, according to the Case-Shiller 20-City Composite index. From its peak in mid-2006, the index is down 13.3%; since the low in March 2012, it is up 30.6%. The price of a home is up 79% over the past 14.5 years. Meanwhile, incomes are up only 35% on a nominal basis over the past 15 years. Looking back to the late 1960s, the cost of a home was about a half of family income. Today, it is more than five times income. And homeownership has significantly declined since 2005.

Investors need to be cautious -- housing is expensive and prices are on a run. Here's how to trade housing, based on technical charts.

1. Invest in homebuilder ETFs

The PHLX Housing Index is the benchmark for the housing market, as its components are 11 homebuilders and eight companies that provide products and services to support the housing market.

One way to trade the housing industry is through the iShares U.S. Home Construction ETF (ITB - Get Report). This exchange-traded fund has 40 components, with homebuilders D.R. Horton (DHI - Get Report), Lennar (LEN - Get Report), PulteGroup (PHM - Get Report) and Toll Brothers (TOL - Get Report) representing 38.4% of the weighting.

Here is the weekly chart for the PHLX Housing Index, with its Fibonacci retracement.


Courtesy of MetaStock Xenith

The housing index is trading above its 61.8% Fibonacci retracement level of 202.05 of the crash from the mid-2005 high to its March 2009 low.

Here is the weekly chart for the home construction ETF.


Courtesy of MetaStock Xenith

The home construction ETF closed at $27.39 on Thursday, up 5.8% year to date but 5% below its multiyear intraday high of $28.82 set on April 6. The weekly chart profile will shift to negative given a close on Friday below its key weekly moving average of $27.56.

The weekly momentum reading is projected to slip to 68.75 this week from 69.39 on July 31. 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 $21.63 as the longer-term reversion to the mean.

Investors looking to buy the home construction ETF should place a good till canceled limit order to buy the ETF if it drops to $25.58, which is a key level on technical charts until the end of next month.

Investors looking to sell the home construction ETF should place a good till canceled limit order to sell the ETF if it rises to $28.22 and $32.33, which are key levels on technical charts until the end of next month and the end of the year, respectively.

2. Invest in community banking ETFs

The housing market depends on the banking system for financing, its lifeblood. The community banking industry provides construction and development loans to community developers and homebuilders. Trading these stocks can allow investors further options for trading the housing sector.

The ABA Community Bank Nasdaq Index represents 362 community banks in this sector. You can trade this industry via the First Trust Nasdaq ABA Community Bank Index Fund (QABA - Get Report), which consists of 139 of these community banks.

Here is the weekly chart for the ABA Community Bank Index.


Courtesy of MetaStock Xenith

The community bank index is trading above its 61.8% Fibonacci retracement level of 236.33 after the December 2006 high and the March 2009 low.

Here is the weekly chart for the community bank ETF.


Courtesy of MetaStock Xenith

The community bank ETF closed at $39.76 on Thursday, up 8.2% year to date but 4.6% below its multiyear intraday high of $41.66 set on July 17. The weekly chart will shift to negative, given a close on Friday below its key weekly moving average of $39.48.

The weekly momentum reading is projected to decline to 70.30 this week from 75.02 on July 31. The 200-week SMA lags as the reversion to the mean of $30.95.

Investors looking to buy the community bank ETF should place a good till canceled limit order to buy the ETF if it drops to $38.88, which is a key level on technical charts until the end of the month.

Investors looking to sell the community bank ETF should place a good till canceled limit order to sell the ETF if it rises to $42.53 and $45.71, which are key levels on technical charts until the end of the year and next month, respectively.

3. Invest in regional banking ETFs

Building, buying and financing homes requires mortgage lending programs from bigger regional banks, including home equity lines of credit.

This part of the banking industry is represented by the KBW Bank Index, which includes 24 of our nation's largest financial institutions, including the four "too-big-to-fail" money center banks. One way to trade this industry is to use iShares U.S. Regional Banks ETF (IAT - Get Report), which focuses on regional banks and excludes the four "too-big-to-fail" banks.

The top five of 58 components are US Bancorp (USB - Get Report), PNC Financial (PNC - Get Report), BB&T Corp (BBT - Get Report), SunTrust Banks (STI - Get Report) and M&T Bank Corp (MTB - Get Report), representing 46.9% of the weighting.

Here is the weekly chart for the KBW Bank Index.


Courtesy of MetaStock Xenith

The regional bank index is trading below its 61.8% Fibonacci retracement level of 81.54 from the February 2007 high to the March 2009 low.

Here is the weekly chart for the regional bank ETF.


Courtesy of MetaStock Xenith

The regional banks ETF closed at $37.12 on Thursday, up 6.2% year to date but 2.3% below its multiyear intraday high of $37.99 set on July 23. The weekly chart will shift to negative given a close on Friday below its key weekly moving average of $36.87.

The weekly momentum reading of 72.23 slipping from 74.77 on July 31. The 200-week SMA lags as the reversion to the mean of $29.45, last tested at $22.26 during the week of June 8, 2012.

Investors looking to buy the regional banks ETF should place a good till canceled limit order to buy the ETF if it drops to $36.43, which is a key level on technical charts until the end of the month.

Investors looking to sell the regional banks ETF should place a good till canceled limit order to sell the ETF if it rises to $39.34, which is a key level on technical charts until the end of next month.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.