Can This Bounce Develop Into Something Bigger?

[Trading With Larry Benedict]( Can This Bounce Develop Into Something Bigger? By Larry Benedict, editor, Trading With Larry Benedict The iShares U.S. Home Construction ETF (ITB) topped out in July after rallying 80% from its October 2022 lows. ITB is an ETF that invests in U.S. homebuilders and home improvement retailers such as DR Horton (DHI) and Lowe’s (LOW). Post-rally, it flatlined before reversing and heading lower. We recently checked in on [ITB in September]( (red arrow in the chart below). At that time, we saw that its steady decline had come off the back of sinking momentum. But last week, that all changed… News emerged that the Fed might be softening its stance on future rate rises. And ITB snapped higher. So let’s check out ITB’s prospects from here… Recommended Link [Buy this AI Stock Before Elon’s Announcement]( [image]( Teeka Tiwari, the man who picked Nvidia before it skyrocketed as high as 5,246%, is now recommending [this AI stock…]( Because it’s most likely supplying Elon Musk with a key piece of advanced tech for his new AI venture. Hurry… Elon Musk has promised that he “will share more information [about this AI project] over the next couple of weeks.” If he mentions the name of this supplier in a tweet or during a press conference, there’s no telling how high shares could go. [Click here now before it’s too late.]( -- A Chart of Two Trends The 50-day moving average (MA, blue line) shows ITB’s two distinct trends. First, a strong rally drove ITB up to its July peak, but it then rolled and trended lower. iShares U.S. Home Construction ETF (ITB) [chart] Source: e-Signal ITB’s nearly 10-month rally coincided with two common bullish signals: - The relative strength index (RSI) tracked in the upper half of its range and showed sustained buying momentum. - Apart from a brief dip in March, the 10-day MA (red line) tracked above the 50-day MA. Both MAs moved higher. The unusual thing about this rally is that it happened when interest rates were accelerating. That’s something you would normally expect to put a lid on demand. But ITB’s run eventually ended, as it couldn’t break up through resistance (upper orange line). During this period, momentum fell steadily from overbought territory (lower orange line). And that’s what pulled ITB down. ITB’s downtrend began to develop with a reversal of the bullish signals we saw during its rally. First, the RSI fell through support (green line) and bearishly tracked in the bottom half of its range. Second, the 10-day MA crossed below the 50-day MA. And both MAs dipped lower. Take another look: iShares U.S. Home Construction ETF (ITB) [chart] Source: e-Signal Up until the Fed’s meeting last week, it was hard to imagine what might break ITB out of its growing downtrend. Yet the Fed’s subtle change of heart caused ITB to jump and saw it recently trade just above its 50-day MA. Adding to the bullish sentiment, the RSI also recently jumped back into the upper half of its range (orange circle). So what should we look for next? Free Trading Resources Have you checked out Larry's free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. A Sustainable Rally It is difficult to maintain an initial trajectory when a stock, like ITB, breaks higher. For the rally to develop further, it needs a sustained uptick in momentum. And that’s why I’ll be watching the RSI. For ITB’s initial jump to evolve into a sustainable rally, we’ll need to see the RSI gain a firm footing in its upper band. The other thing to watch is the MAs. As you can see, ITB has recently traded right on the 50-day MA. For ITB’s bounce to turn into something bigger, the 10-day MA needs to cross above the 50-day MA and start accelerating higher again. Regards, Larry Benedict Editor, Trading With Larry Benedict Mailbag Readers are seeing results with The S&P Trader: I wanted to say how much I’ve enjoyed S&P Trader since I subscribed. I really enjoy your market outlook talks with Chris lately. But what I’m most excited about is “learning how to fish.” On days when you don’t have a recommended trade, I’ve been able to still “put a small ‘P’ on the page” as you say, by just taking a small spread trade (like 5 or 10 point spread) WAY out of the money. Sure, the profit is a lot less, and the risk is less too. But that’s ok with me. When you do 4-5 of these each week it’s been adding $250-350 extra to my balance. Combined with the larger trades you recommend, that starts to make a big difference in my brokerage account after a while. Although I don’t have the same amount of experience or the same tools you do to interpret signals, I feel like I’ve learned a lot from you. I’m also learning to wait for the market to show me its hand before taking a trade, and look for some chart patterns like triangles or intraday double & triple tops. Thanks for your great service and keep up the good work. – Mike S. Thanks for writing in, Mike. If anyone else wants to find out more about how spread trading works, you can [watch my presentation here]( to see how you can build experience each week. And send any questions to feedback@opportunistictrader.com. 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