Homebuilder ETF just had its worst month ever, but it’s on the cusp of a comeback, chart analyst says

Homebuilding stocks had a rough March.

The iShares U.S. Home Construction ETF (ITB), which tracks the group, closed out its worst month ever on Tuesday with a more than 33% loss since Mar. 1, adding to a cacophony of gloomy statistics that included the Dow Jones Industrial Average rounding out its worst first quarter in history.

The pain has come amid concerns that the economic impact of the coronavirus pandemic could last longer than expected, possibly upending the housing market’s spring selling season. President Donald Trump extended the national social-distancing guidelines to Apr. 30 on Sunday.

But some are expecting a relatively quick comeback for the group once the worst of the outbreak blows over.

With the ITB still nearly 43% off its 52-week high but beginning to bounce off a key support level, it’s showing promising signs that hint at a near-term recovery, Craig Johnson, senior technical research analyst at Piper Sandler, said Tuesday on CNBC’s “Trading Nation.”

Given the low-interest-rate environment, undersupply in the housing market and an impending influx of millennial buyers, homebuilders could recover sooner than expected, particularly given their individual strength on the charts, Johnson said.

Lennar and D.R. Horton and [NVR] … all look like constructive charts inside of that ETF,” Johnson said of the ITB’s top three holdings. “That represents a little over 40% of the ETF. So … I like what I see.”

“I think this ETF is poised to do very well if you look forward over the next six to 12 months,” the chart analyst said. “So, I would be a buyer of it.”

John Petrides, portfolio manager in the wealth management division of Tocqueville Asset Management, saw the catalysts in place for a comeback.

Noting that cyclical stocks such as the homebuilders “have gotten destroyed during this sell-off over the past 30 days,” Petrides said in the same “Trading Nation” interview that he “would agree, in general, that this group is attractive here.”

One key point for investors to remember is that unlike the 2007-2009 financial crisis, housing is not directly related to the issue at hand, which could mean stability for homebuilders down the line, Petrides said.

“A year from now, we could be talking about pent-up demand in those people that are looking to buy a house, wanting to get into the market,” he said. “One very important … investment theme that investors were playing on [was] the move out of the suburbs and into big cities, and I’m wondering if COVID-19 will see a reversal of that, that there could be some hesitancy to move into very densely populated areas in big cities and more of a favorable move toward the suburbs.”

The ITB closed more than 4% lower on Tuesday, at $28.92.

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