Investors seeking market exposure to the housing market and banking system can buy individual stocks or by trading these three exchange-traded funds. Given strong gains in November, look for key levels at which to reduce holdings and book some profits.

The iShares U.S. Construction ETF (ITB) consists of 44 stocks involved in home construction and homebuilders. D R Horton (DHI) and Lennar (LEN) are the largest components with weightings of 12.02% and 10.38%, respectively.

The iShares U.S. Regional Banks ETF (IAT) consists of 54 bank stocks and super regional banks, US Bancorp (USB) and PNC Financial (PNC) 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.

The First Trust Nasdaq ABA Community Bank Index Fund (QABA) consists of 147 smaller banks with Signature Bank (SBNY) the largest component with just a 3.51% weighting.

Before we look at the weekly charts and key levels for these ETFs, let's look at 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 September, unchanged from the pace of August. The month-over-month gain was higher by 0.4% versus 0.2% in August. 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% and just 7.1% below the peak.

 

This chart above shows new home sales for October. New home sales declined in October to a seasonally-adjusted annual rate of 563,000 units, down from 574,000 in September. This chart clearly shows that the sales pace for new homes is significantly below potential.

 

The chart above shows existing home sales for October. This broader measure of home sales rose to a seasonally adjusted annual rate 5.60 million units up from 5.49 million units in September. 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 appear to be too high relative to income growth, and mortgage rates are back above 4% from nearly 3%. This stress is noted in the drop of 9.4% in mortgage applications this week.

Now for the ETFs.

Here's the weekly chart for the home construction ETF.

 

Courtesy of MetaStock Xenith

The weekly charts show 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 chart 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.

The construction ETF closed Wednesday at $27.37, up just 1% year to date and is 8.8% below the July 27 high of $30. The ETF is in bull market territory 26.7% above its Feb. 11 low of $21.61.

The weekly chart for ITB is positive with the ETF above its key weekly moving average of $27.15 and just above its 200-week simple moving average of $25.34. This "reversion to the mean" was tested as a buying opportunity at $25.27 at the open on Nov. 9, the day after the election. The weekly momentum is projected to rise to 42.48 this week up from 30.57 on Nov. 25.

Investors looking to buy the home construction ETF should buy weakness to $25.34, which is the 200-week simple moving average. Investors looking to reduce holdings should sell strength to $31.64, which is a key level on technical charts until the end of 2016.

Here's the weekly chart for regional bank ETF.

 

Courtesy of MetaStock Xenith

The regional bank ETF closed Wednesday at $43.04, up 23.1% year to date and in bull market territory 53.1% above its Feb. 11 low of $28.12. The ETF set its multiyear intraday high of $43.19 on Nov. 30.

The weekly chart for IAT is positive but extremely overbought with the ETF above its key weekly moving average of $39.73 and above its 200-week simple moving average of $33.17, last tested during the week of July 8 when the average was $31.96. The weekly momentum reading is projected to rise to 92.65 this week up from 89.52 on Nov. 25, well above the overbought threshold of 80.00.

Investors looking to buy the regional bank ETF should buy weakness to $40.19, which is a key level on technical charts until the end of 2016. This ETF has gone parabolic and is an inflating bubble, so if you are long, consider reducing holdings by 50% just in case.

Here's the weekly chart for the community bank ETF.

 

Courtesy of MetaStock Xenith

The community bank ETF closed Wednesday at $49.49, up 27% year to date and in bull market territory 52.7% above its Feb. 11 low of $32.40. The ETF set its multiyear intraday high of $50.39 on Nov. 25.

The weekly chart for QABA is positive but overbought with the ETF above its key weekly moving average of $45.80 and well above its 200-week simple moving average of $35.95. The weekly momentum reading is projected to rise to 85.52 this week up from 80.85 on Nov. 25, moving further above the overbought threshold of 80.00.

Investors looking to buy the community bank ETF should do so on weakness to $46.30, which is a key level on technical charts until the end of 2016. This ETF has gone parabolic and is an inflating bubble, so if you are long consider reducing holdings by 50% just in case.

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

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