Homebuilders ETF on the Rise

August 28th, 2020 Homebuilders ETF on the Rise Dear Reader, Yesterday, we looked at daily price chart and a MACD chart for Mastercard Inc. noting that the stock's MACD line was showing a 'buy' signal. For today's Trade of the Day e-letter we will be looking at a daily price chart for the SPDR S&P Homebuilders ETF symbol: XHB. Before breaking down XHB's daily chart let's first review the investment objective of the ETF. The XHB ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index derived from the homebuilding segment of a U.S. total market composite index. In seeking to track the performance of the S&P Homebuilders Select Industry Index, the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. Now, let's begin to break down the Daily Price chart for the XHB ETF. Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for XHB. 50-Day EMA and 100-Day EMA 'Buy' Signal The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving. • 50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal • 50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the ETF's buying pressure has begun to outweigh the selling pressure signaling a 'buy' signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a 'sell' signal. As the chart shows, on June 12th, the XHB 50-Day EMA, crossed above the 100-Day EMA. This crossover indicated the buying pressure for the XHB ETF exceeded the selling pressure. For this kind of crossover to occur, an ETF has to be in a strong bullish trend. Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the 'buy' signal is still in play. As long as the 50-Day EMA remains above the 100-Day EMA, the ETF is more likely to keep trading at new highs in the coming days and weeks. Our initial price target for XHB is 58.35 per share. Real People, Making Real Money "I doubled my $85k, passing $170k in 6 months... Then doubled it again, passing $340k in the next 3 months!" -George C., Customs & Border Patrol, NYC "I'm getting 203% annual cash payouts using Chuck's approach. And for me that's income in excess of $150,000 per year while risking only a small portion of my capital." -Craig F., Retired, CA CLICK HERE to learn how Chuck Hughes made this possible! 105.1% Profit Potential for XHB Option Now, since XHB's 50-Day EMA is currently trading above the 100-Day EMA this means the ETF's bullish rally will likely continue. Let's use the Hughes Optioneering calculator to look at the potential returns for an XHB call option purchase. The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat XHB price to a 12.5% increase. The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following XHB option example, we used the 1% Rule to select the XHB option strike price but out of fairness to our paid option service subscribers we don't list the strike price used in the profit/loss calculation. Trade with Higher Accuracy When you use the 1% Rule to select an XHB in-the-money option strike price, the XHB ETF only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying ETF closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if XHB is flat at 53.40 at option expiration, it will only result in a 7.4% loss for the XHB option compared to a 100% loss for an at-the-money or out-of-the-money call option. Using the 1% Rule to select an option strike price will result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options. The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks. The prices and returns represented below were calculated based on the current ETF and option pricing for XHB on 8/27/2020 before commissions. When you purchase a call option, there is no limit on the profit potential of the call if the underlying ETF continues to move up in price. For this specific call option, the calculator analysis below reveals if XHB increases 5.0% at option expiration to 56.07 (circled), the call option would make 48.8% before commission. If XHB increases 10.0% at option expiration to 58.74 (circled), the call option would make 105.1% before commission and outperform the ETF return more than 10 to 1. And if XHB increases to our initial price target of 58.35 at option expiration the call option would make 96.8% before commission. The leverage provided by call options allows you to maximize potential returns on bullish ETFs. The Hughes Optioneering Team is here to help you identify winning trades just like this one. Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade. Trade Like Chuck Today! You can start receiving hand-picked trades from Chuck today! Chuck is offering special pricing for his Inner Circle Trading Service for Trade of the Day subscribers. Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing! Wishing You the Best in Investing Success, Chuck Hughes Editor, Trade of The Day Have any questions? Email us at dailytrade@chuckstod.com What are the Optioneering Three Triggers? Unsubscribe Investment Software Inc 22C New Leicester Hwy #117 © 2020 Tradewins Publishing. All rights reserved. The information provided by the newsletters, trading, training and educational products related to various markets (collectively referred to as the "Services") is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by Legacy Publishing, LLC ("Legacy") a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. Past performance is not necessarily indicative of future results. Trading and investing involve substantial risk and is not appropriate for everyone. 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