Other than the gold sector, no other group of stocks has disappointed investors more this year than the homebuilders.

The S&P Homebuilders ETF (XHB) peaked in mid-January at $49.50 per share. On Monday, it closed at $40.10. That’s a 20% loss in about eight months.

Threats of rising interest rates have hurt the sector. It’s harder to sell new homes at hugely inflated prices when the cost of borrowing money goes up.

Lumber prices shot up almost 40% during the first six months of 2018, and labor costs exploded higher as well. Those factors crushed homebuilder profit margins.

So, homebuilding stocks got hurt.

But three weeks ago, luxury homebuilder Toll Brothers (TOL) stunned Wall Street by announcing quarterly earnings that blew away expectations. The company reported earnings of $1.26 per share. That was 18% better than the $1.03 most analysts were expecting.

TOL surged 15% higher on the news. This was the first piece of good news the sector’s had all year. And the action in the stocks likely marked a bottom for the homebuilding sector.

Toll Brothers’ positive earnings report showed that folks are still willing to buy new homes in a rising interest rate environment. And since the cost of lumber has fallen dramatically over the past few months, homebuilder profit margins are likely to expand in the quarters ahead.

The trend in the homebuilder sector now looks like it’s transformed from bearish to bullish. And it looks set to move higher over the next few months. Take a look at this chart…

XHB bottomed in mid-August coincident with TOL’s earnings announcement. XHB popped above its 50-day moving average (MA) line. And over the past three weeks, both the 9-day exponential moving average (EMA) and the 20-day EMA have rallied above the 50-day MA.

This sets up a bullish moving average configuration that often leads to much higher prices over the intermediate term.

Of course, there was a similar setup on the chart pattern in June. Despite an initial rally, XHB hasn’t been able to gain much ground since then.

But it hasn’t lost ground either. So, the bottoming pattern remains valid. And after a few months of chopping back and forth, the homebuilding sector looks ready to bust out higher.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Today in the mailbag, two Delta Report subscribers share how the service has improved their trading skills…

I have had great results with Jeff’s recommendations. But even more important are his explanations for them – extremely educational. He is usually correct. I’ve paid for my subscription with his recommendations.

– Tirso

I have been enjoying my lifetime subscription to Jeff Clark’s Delta Report. First I read all his tutorials, and gained a better-than-ever understanding of how options are properly used. Then, instead of striking out on my own (which was tempting) I stayed on the sidelines, watching how his trade recommendations worked.

When I began to trade his recs, I won with some, lost with two. But overall, the winners have proven that Jeff’s analysis works and works well, even in this currently very difficult-trading market. Bravo, Jeff. Keep up the good work.

– Jerry

And another subscriber offers a different technical view of the dollar chart…

Another way of looking at it is one giant cup with handle (similar to a lot of stock charts). If so, there could be a lot of upside in 2019.

– Derrick

Are you bullish or bearish on the dollar in the long term? What trades are you making right now to profit?

As always, send in your trading stories, questions, or suggestions right here…

Before we sign off…

Don’t forget – next month at the Legacy Investment Summit, Jeff will take part in a “Bulls vs. Bears” debate you won’t want to miss… Plus a presentation that’ll reveal his favorite trading strategies for a market downturn.

And Jeff isn’t the only investment-world rock star presenting in Bermuda… You’ll have the chance to see Doug Casey, Bill Bonner, Teeka Tiwari, and more… face to face.

There are only a few tickets still available. So don’t miss this rare chance to meet all of your favorite investment gurus, and hear what they have to say, in person. Click here for all the details…