Homebuilders (XHB), Metals & Mining (XME) Poised For More Strength

Conclusion, Investment Implications, Strategy

The SPDR S&P Homebuilders ETF (XHB) and SPDR S&P Metals & Mining ETF (XME) are amid favorable conditions according to price, relative performance versus the S&P 500 (SPX), and investor asset flows, for upcoming outright strength and relative outperformance.

Current Sector & Industry Group Ideas

Table 1 below is an updated version of Table 2 that appears in our weekly Keys To This Week: Sector & Industry Groups report, published on Monday mornings.

Table 1

Homebuilders: Analysis and Rationale

In seeking to track the performance of the S&P Homebuilders Select Industry Index (the “index”), the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the homebuilders segment of the S&P Total Market Index (“S&P TMI”).

The upper panel of Chart 1 below plots the SPDR S&P Homebuilders ETF (XHB) daily since September, along with its 50- and 200-day moving averages, widely-watched minor and major trend proxies.  The lower panel plots the corresponding daily relative performance of XHB versus the SPDR S&P 500 ETF Trust (SPY) along with its 63-day moving average, which we use to identify the Strategic (quarterly) trend of relative performance versus the broad market.

Chart 1

The upper panel shows that XHB has been edging above its 200-day MA since Nov 11th and has moved significantly above it over the past seven days, indicating an emerging major bullish trend change.  Also note that the 50-day MA has very recently crossed above the 200-day MA, indicating a major bullish shift in price momentum.  The lower panel shows that XHB has been outperforming SPY on a Strategic basis since Nov 10th and that this trend has significantly accelerated since mid-December.  Not shown is that the total net assets invested in XHB have begun a new trend of monthly expansion since Jan 5th.  Expanding assets indicate investor conviction in higher prices.  Combined, these factors suggest a new buy/overweight opportunity in XHB that will remain valid above the 59.44 area.

Metals & Mining: Analysis and Rationale

In seeking to track the performance of the S&P Metals & Mining Select Industry Index (the “index”), the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the metals and mining segment of the S&P Total Market Index (“S&P TMI”). The fund is non-diversified.

The upper panel of Chart 1 below plots the SPDR S&P Metals and Mining ETF (XME) daily since September, along with its 50- and 200-day moving averages, widely-watched minor and major trend proxies.  The lower panel plots the corresponding daily relative performance of XME versus the SPDR S&P 500 ETF Trust (SPY) along with its 63-day moving average.

Chart 2

The upper panel shows that XME has moved above its 200-day MA for the past four days to suggest an emerging major bullish trend change, following a failed attempt to rise and remain above the major trend proxy in late November/early December.  Also note that, like XHB, the 50-day MA has edged above the 200-day MA to indicate an emerging major bullish shift in price momentum.  The lower panel shows that XME has been outperforming SPY on a Strategic basis since Sep 28th, and more recently tested and successfully held that trend on Jan 3rd.  Not shown is that the total net assets invested in XHB have begun a new trend of monthly expansion since Jan 6, which suggests near-term investor conviction in higher prices.  Combined, these factors suggest a new buy/overweight opportunity in XME that will remain valid above the 48.48 area.