ByTomi Kilgore

4:18 pm
Apr 19, 2013

For a year and a half, home-building stocks led the broader stock market higher. But in recent weeks that rally in home builders has run out of steam and now technicians say the charts are pointing still lower.
The housing market has continued to be one of the bright spots of an economy showing signs of slowing. The Federal Reserve said in its latest “Beige Book” report of business activity that industries tied to residential construction showed “particular strength” from late February to through April 5.
But chart-watchers say the picture for the $2.6 billion SPDR S&P Homebuilder exchange traded fund (XHB) is deteriorating.
For one, the XHB has been holding below its closely watched 50-day moving average line, or 50DMA, which technicians see as a guide to the intermediate-term trend.
“Typically, [the 50DMA] is an area of institutional support,” said Adam Sarharn, founder and CEO of boutique investment firm Sarhan Capital. “If [the XHB is] above it, all things being equal, it’s healthy; if it’s below, it’s unhealthy.”
The XHB was up 2.1% at $28.60 in afternoon trading Friday, while the 50DMA extended to $29.05.
The XHB is on track to close below the line for a fifth-straight session, and eighth time so far this month. The more time the XHB stays below the line, the weaker it becomes, Sarhan said.
For now, the XHB is being held up by support seen at the early April low just below the $28 level, chart watchers say. But they also say it is now being held back by the 50DMA, which is now resistance, at $29.05.
If support at $28 gives way, technicians believe selling will intensify. While there may be some support at the February lows around $27, Sarhan sees the 200-day moving average, currently at $26.01, as a downside target.