XHB, a Homebuilder index, has been forming a triangle for the last 6 months, digesting its run up since 2012. This week the index broke out at 31.75. Volume was weak on the breakout, but it was a Holiday shortened week. Follow thru next week is key to ensuring it was a clean break. A 4th Wave triangle would measure up to 38 for a potential 19% gain. Being a 4th wave triangle would suggest that the rally should be quick. The Indicators are turning up and look supportive of a move higher.
If the stock market still has predictive economic abilities, as opposed to be a voting machine, a breakout indicates the housing market's Selling Season ought to be robust.
Using the daily chart to zoom in on the triangle shows this weeks' breakout. The breakout had decent volume but the Holiday light trading volumes didn't show much follow thru. After a spike opening on Black Friday that touched the 52 week high, the move tuckered out. The Daily indicators are a little tired looking but have room to move up. Significant support should show up at 31.50 to 31.75 if the move is valid. The 50 day moving average should provide additional support at 31. Measuring the height of the base gives XHB a target of 37.
The 60 minute chart shows the spike opening on Friday. There just wasn't enough volume to provide any follow thru. The indicators are in the process of resetting. The 50 hr moving average is pointing up to provide future support at 31.75 which is where the breakout occurred.
XHB is a Buy between 31.70 and 31.80. The Stop can be tight at 31.50 because if that broke XHB would find a good bid in the mid 30's. The target of 37-38 should be hit by the end of April.
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