NEW BULLISH Plays
SPDR S&P Homebuilder ETF - XHB - close: 37.26 change: -0.86
Stop Loss: 35.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 22, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.3 million
New Positions: Yes, see below
Every month there is a parade of data on the housing market. Investors get to hear the latest on housing starts, building permits, new home sales, existing home sales, pending home sales, the Case-Shiller 20-city home price index, and the NAHB homebuilder confidence survey. There are probably more reports but point is housing is a crucial part of the economy and Wall Street always has their eye on it.
Several of the monthly indicators listed above can be volatile and often seen major revisions. So it's best to not focus on any one report but look at the trend. Lately the trend has been very bullish. Housing inventory in the U.S. is relatively low. The healthy labor market has generated more home buyers. Rents in the U.S. have been soaring, which is also encouraging more consumers to buy homes. The latest survey of the National Association of Homebuilders rose from 60 to 61 in August, which is a nine-year high.
Looking at homebuilder earnings, many of the big homebuilders are beating estimates. Some were beating on both the bottom line and the revenue number. Several reported gross margin improvements and healthy gains in new orders. Investors finally took notice of the strength in housing a couple of weeks ago and the homebuilder ETFs like the XHB and the ITB broke out to eight year highs.
Last week was horrible for stocks. Investors were selling everything and homebuilders were not immune to the damage. The XHB plunged from new highs back toward technical support. We suspect this is temporary and offers a potential entry point. Tonight we are suggesting a trade on the XHB.
If you're not familiar with the XHB here's a brief description from their website: "The SPDR® S&P® Homebuilders ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® Homebuilders Select Industry Index."
The top ten holdings in the ETF are: TPX, USG, OC, LEN, DHI, NVR, PHM, SPF, AWI, and ANN.
Tonight we are listing a buy-the-dip entry trigger at $36.75. The $36.00-36.50 area looks like support and we're setting the trigger just above it so we don't miss an entry if the XHB bounces faster than expected.
This is a longer-term trade for us and expect it to last several weeks.
Buy-the-dip Trigger @ $36.75
- Suggested Positions -
Buy the XHB @ $36.75
- (or for more adventurous traders, try this option) -
Buy the 2016 Jan $40 CALL (XHB160115C40) current ask $1.06
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike