Market Overview

Should Investors Consider Homebuilding, Housing-Related Stocks? Sterne Agee Answers


In a note on Monday, Carter Worth, Chief Market Technician at Sterne Agee suggested that investors take a closer look at homebuilders and housing-relating stocks heading in to the new year.

According to Worth, homebuilders and housing stocks have been “dull” over the past two years, but this is about to change as many stocks are poised to “come to life.”

“We are making the case now to be aggressive on the long side with this area of the market,” Worth wrote. “By our work, this will be an area of outperformance in 2015.”

Worth notes that the SPDR S&P Homebuilders ETF (NYSE: XHB) saw a charge from September 2011 through June 2013 in which the ETF returned more than 150 percent. Since then, the ETF entered a “dull” consolidation period. The same setup can be seen in the iShares Dow Jones U.S. Home Construction ETF (NYSE: ITB) which returned more than 200 percent through mid-2013 and then enter a “dull” consolidation period and yet to break out.

Worth notes that the charts of both ETFs point to a “bearish-to-bullish” reversal, or a “Cup and Handle” setup. The analyst adds that the “implications” of the setup imply higher prices in the ETF in the weeks and months ahead.


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