Chart of the Day – $XHB Breaks 200 Day Moving Average For First Time Since 2011

by Enis August 15, 2013 10:57 am • Commentary

Simple chart today to illustrate the extent of the recent weakness in the housing sector (as longer-dated Treasury yields hit a 2 year high today):

Daily chart of XHB, 200 day ma in yellow, Courtesy of Bloomberg
Daily chart of XHB, 200 day ma in yellow, Courtesy of Bloomberg

This is the first convincing break of the 200 day moving average for XHB since 2011, an amazing run of strength.  The sector was a leader off the 2011 lows, but has been seriously lagging for a couple months now.

Dan and I wrote about the worrisome signals being sent by the homebuilders over the last few months in our post earlier this week:

In the short-term, homebuilders have been moving quite closely with interest rates.  As rates have moved higher due to taper concerns, homebuilders have been one of the sectors most affected by concerns about future demand for new homes.  While management executives have mentioned that they have not seen much of an impact on demand from higher rates just yet, the market is clearly more concerned.  Today’s price action is again indicative of that concern, as the 10 year rate rose 8 basis points to 2.7%, and homebuilders are getting punished.

If tapering does not occur in September, or rates drop over the next month anyways, then expect a sharp bounce-back among the homebuilders.  They’re quite oversold in the near-term on that fear.  But in the long-run, as we mentioned on several occasions this spring, homebuilder valuations are still quite high compared to the housing bull market of last decade.

Interestingly enough, the weakness in XHB is being led by the retailers rather than the homebuilders today, potentially a sign that investors have become offsides in that positioning (too long retailers like HD, too short homebuilders like TOL).  Keep an eye on whether XHB remains below its 200 day ma in the days ahead.