The ETF stocks associated with home construction are consolidating their break below a pivotal level, and a large home builder is exhibiting worrying signs that suggest further downside in the days and weeks ahead.
GodzillaNEWZ has reported that the SPDR S&P Homebuilders ETF (XHB) pushed down through $64.50 support (now resistance) this past Friday, and failed to close back above the level in the following session. This gave the investors an indication of worse days to come.
To give more evidence that an extended bearish trend could be in progress, home builder Lennar Corporation (LEN) has set up a potential bearish head and shoulders pattern. The Curse of the Head & Shoulders warns that after three peaks have been created, the middle peak should be lower than the two shoulder peaks. If so, this means that the price should fall below the neckline.
For the rest of this article, it is suggested to refer to the technical charts, rather than subjectively formulating technical opinions.
Nevertheless, a technical analyst should stay mindful of the fact that breakouts and breakdowns do not need to be accompanied by technical patterns in order to be real. Also a possible breakdown might be reversed any time if prices simply reverse and regain above the breakout level.
At any rate, prudent investors would consider locking in recent gains, and even adjust their portfolio weights to become disproportionately short on the sector. Given the sector’s poor performance so far, it certainly looks as if the downside has more room.