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Strong Housing Data Boosts Construction Stocks

David Becker
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www.iforex.com

The Home Construction iShares (ITB) holds support areas after breaking out, and is currently in an uptrend that has lasted over two years. This is important because the recent wedge breakout ended the correction and signaled a continuation of this uptrend. This means a move above the February high is expected. The wedge is considered a correction because ITB hit a new high in February and the wedge retraced 62% of the prior advance. The combination of the pattern and the retracement are typical for corrections.

The breakout zone in the 23.5-24 area turns into a support zone while the bounce over the last two weeks affirms support. A move below 23.5 would negate the breakouts and call for a reassessment. Additionally, notice that the rising 200-day moving average is in this zone.

New home sales jumped 18% in May and the total was the highest since the summer of 2008. At 504,000, this total broke above the 2013 highs and forged a new high. The multi-year high tells us that new home sales are trending in the right direction for homebuilders.

The National Association of Realtors’ index tracking pending sales of existing homes rose 6.1% in May from the prior month to 103.9, the group said Monday. It was the index’s largest monthly gain since April 2010, when home sales spiked 9.6% ahead of the expiration of a tax credit for first-time buyers.

Economists surveyed had expected pending home sales to rise a more modest 1.1% in May. April’s reading was raised slightly to 97.9 from the initial estimate of 97.8. The pending-sales index can be a timely measure of sales activity because it tracks home purchases when contracts are signed. Sales usually close a month or two later.

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