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Wednesday, February 15, 2012

Where's the Actual Value in the Homebuilders' ETF?

Data released today showed an increase in home builders' sentiment with respect to current and future single-family homes, as shown on the graph below.


However, as I discussed in my post of January 26th, new home sales still remain depressed at the lows of the 2009 levels where they've been since their decline began in 2006.

Contrary to actual sales data, the Homebuilders ETF, XHB, is trading up from its 2009 lows, and has bounced by almost 33% since its decline began in 2006 (see the Monthly chart below)...a difference of a gain in value of 33% versus the 0.00% gain in actual new home sales since 2009...makes me wonder what's driving the price of this ETF and whether it has actual value, particularly sustainable value.

As can be seen, price is sitting in the vicinity of Fibonacci and price confluence resistance and is currently held below that level in a trading range. I'd be skeptical of any breakout to the upside (and would question its sustainability) without seeing a dramatic and steady improvement in new home sales to back it up.

This confirms what I concluded in my post on January 31st.