Home builder stocks continue to struggle while adapting to this higher yield environment. For a little perspective I drew the below chart, where I plotted the SPDR Homebuilders ETF (XHB) versus the yield on 10 year US Treasury Notes. Since the home builders topped in May, the XHB is roughly nine percent lower and treasury yields have rallied roughly 35% over the same time-period. To be sure, the higher rates environment is not only weighing on the home builders, but across the spectrum of interest-rate sensitive instruments. Eventually, this will also hit the broader stock market, although beyond the medium term rising rates and a strong dollar are positive signs for the economy.
All the while, the daily chart of the SPDR Homebuilders ETF (XHB) has started to form a three month-long wedge, or narrowing trading range, which will remain until it doesn’t. A break below $29.30 could push this exchange traded fund quickly toward $27.80 and hence a re-test of the June lows.
Individual home builders stocks like Beazer Homes (BZH) are showing relative weakness versus the index and feel heavy. Beazer Homes (BZH) until yesterday, Tuesday August 6th had support at the $16.80 area. With yesterday’s drop however the stock now risks falling toward the $15 area, which is currently 7.50% away.
The chart of D R Horton Inc (DHI) too is looking awfully slippery. Yesterday’s price action pushed the stock out of a small pennant formation that could quickly accelerate the stock to the downside.
Hovnanian Enterprises (HOV) on Monday re-tested the underbelly of an April up-trend, where it was rejected and pushed lower on good momentum.
At this point it would take a good one or two day bullish reversal to undo the renewed damage in home-builders over recent days. Should a bullish undertone develop however these stocks could quickly gain upside momentum as traders will look to squeeze those caught short.