XHB iShares Homebuilders

xhb sept 2012xhb sept 2012 content

So you listen to this guy on TV that KBH, the Homebuilders ETF (iShares) is a screaming buy, and to make the point a chart is shown of the performance over the last year, up a whopping 100% or so. A good reason NOT to buy. Next you figure homebuilders like Lennar, Pulte etc.etc. should be a good buy because you have heard ad nauseum that the housing market  is bottoming and just about ready to take off again. This may or may not be the case. Either way is is good to realize that this “homebuilder” ETF consists of only 27.63% of home builders proper. The bulk consists of companies like Corning, Lowes, Whirpool and so on, hardly a pure play if that is what you were expecting.

Looking at the chart above, it is clear that the rebound has taken the to the 50% retracement level AND to the 4th wave of previous degree, both pretty well standard behaviour and more likely time to sell rather than buy. Also the pattern is that of a text-book  a-b-c with all 3 legs roughly the same as vectors, the signature of a counter-trend correction. Furthermore, looking at the details of the last moves it is clear that this last leg unfolded in a nice channel;

kbh s sept 2012

and can, without too much imagination, be counted as a 5-wave move which all c waves should be. We agree that this was a screaming buy a year ago but definitely not today. Both the RSI and the MACD are confirming this view. The moral of the story is that one should not believe every Tom , Dick and Harry “expert” that comes on TV and certainly not when you are desperate to find something to believe in and are as gullible as a 3 year old.