Home is Where the Heart Is:  

If one is looking for more pure-play homebuilder exposure they have to be aware of the composition of the 2 major ETFs that monitor the group. The XHB does not have a homebuilder until you get down to the eighth largest holding in PHM (just 2 of the top 10 are builders with TOL at number 10). Compare that to the ITB, where the top 4 holdings are DHI LEN NVR, and PHM which make up more than 40% of the fund. Of course, both of these will be impacted by interest rates, but notice the chart of the 10-year yield here has formed a similar double bottom pattern (look at the correlation factor at the bottom of the TNX chart), like the chart below of the ITB. Which instrument is going to blink first? The ten-year yield ended a 6 session losing streak on 6/7 rising 3.5%, an enormous move. See the ITB did undercut the late April lows, something the XHB did not do (the top holdings have more of an industrial flavor), making the double bottom base legitimate as it shook out the weak shareholders. Some of the better-looking individual names include KBH which came into Tuesday as the only major name still above its 50-day SMA, and notable laggards include DHI which is now sporting a bearish head and shoulders pattern now 16% off its most recent 52-week highs.

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