When we last looked at the iShares U.S. Home Construction ETF (ITB), it was in a clear downtrend (red arrow on the chart).
After forming a double-top at the end of 2021, ITB sold off heavily along with the rest of the market at the start of 2022.
Given that most folks use mortgages to finance their new builds, home construction is particularly sensitive to the interest rate cycle.
So, the prospect of rising rates this year caused ITB to fall hard. Even when the rest of the market enjoyed a nice bounce through March, ITB shares barely budged.
From its January high to its recent low, ITB lost one-third of its value.
However, over the past few weeks, ITB’s chart pattern has started to change. Today, I want to discuss what’s in store for this vital sector.
Let’s pull up the ITB chart…
iShares U.S. Home Construction ETF (ITB)
Source: eSignal
In the chart, you can see the huge selloff that began at the start of 2022.
Back then, there were two key technical indicators that confirmed the emerging downtrend…
First, the 10-day moving average (MA – red line) crossed down over the longer-term, 50-day moving average (MA – blue line).
Second, the Relative Strength Index (RSI) broke below support (green line), into the lower half of its range.
Although the two MAs tracked closer together from February to March, the downtrend accelerated again on April 4.
But with the recent price action, our two MAs are converging once again. In fact, over this past week, the 10-day MA began to rise.
If ITB holds the support it’s forming (orange line) and continues to trend higher, the 10-day MA will soon intercept the 50-day MA.
The 10-day MA crossing back above the 50-day MA would show that an emerging uptrend is starting to gain traction.
I’ll also be watching the RSI…
If you look closely, you will see that the RSI has traded in two clear ranges since mid-October 2021.
Let’s take another look…
iShares U.S. Home Construction ETF (ITB)
Source: eSignal
From October to the end of 2021, the RSI remained in the upper half of its band. That coincided with ITB’s uptrend.
Then, after breaking below support and setting off the downtrend, it has since stayed in the lower half of its range (apart from a brief move higher in March).
Right now, the RSI is pressing right up against resistance…
So, what am I expecting from here?
For any up move to take hold, it’s imperative for ITB to first hold its current support level. A break below support would simply mean that the 2022 downtrend has further to go.
The next test for an uptrend would then be for the RSI to break back above resistance and into the top half of its range… and stay there.
Then, if the 10-day MA crosses back above the 50-day MA, ITB’s first price target is a break above its March high ($68.36).
But for now, we’ll focus on more immediate action around support. Although it’s still early, the price action is starting to look promising.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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