Stoyan Bojinov: Selling pressures tipped the market south right from the opening bell as ongoing Euro zone woes made way for the bears on Wall Street. Investors’ sentiment declined as worries overseas intensified after ECB President Mario Draghi put a damper on hopes that the central bank would extend its bond purchasing program to help out the debt burdened member nations. U.S. stocks started the week in a hole so to speak, with the Nasdaq down 1.26% on the day, while the Dow Jones Industrial Average proved most resilient, shedding 0.84%. Surprisingly, gold held its ground quite well amidst the uncertainty; futures prices for the yellow metal drifted sideways for the majority of the day, settling near $1,595 an ounce as the trading session drew to a close [see ETF Insider: Will Holiday Cheer Be Enough?] .
On the home front, investors will turn their attention to the latest U.S. housing starts data which is expected to hit the street later today as the opening bell rings. The State Street SPDR Homebuilders ETF (NYSEARCA:XHB) is on our radar for the day as it may experience an increase in trading volumes following the release of the latest housing market data [see XHB Holdings]. Analysts are expecting for 635,000 new housing starts in the month of November, versus the previous reading of 628,000.
Housing market data releases have been surprisingly positive over the last few months, although investors have had a hard time digesting the better-than-expected news at home thanks to all of the debt drama stemming from overseas. When considering the chart below, XHB has staged a considerable rebound since hitting a recent low at $12.21 a share on 10/4/2011 [see XHB Returns]. Aside from improving fundamental factors, this homebuilders ETF is poised to move higher from a technical perspective; XHB has been establishing rising levels of support and the fund recently climbed back over its 200-day moving average (yellow line).
Despite the attractive upside potential in XHB, investors ought to exercise caution as they establish long positions at current levels given the cloud of uncertainty stemming from the Euro zone that continues to plague virtually every corner of the global equity market [see Are Gold ETFs The Best Defense Against Euro Drama?].
If the domestic housing market continues to show signs of a recovery, investors may find themselves in a buying mood given the attractive entry point for many construction and real estate ETFs [see Energy Bull ETFdb Portfolio ]. In terms of upside, XHB may jump to $17 a share, in which case we would advise short-term traders to lock-in profits seeing as how this is a significant level of resistance. On the other hand, if the latest housing starts data paints a gloomy outlook, XHB could tumble down to $15 a share as selling pressures prevail. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Written By Stoyan Bojinov From ETF Database Disclosure: No Positions
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