Off the Beaten Path with Homebuilders and the German Stock Market
Key points:
- The stock market has advanced sharply in recent months, so a pullback remains a distinct possibility
- That said, several sectors are entering periods of historically significant and persistent fourth-quarter strength
- Traders should be looking for opportunities to play the long side in homebuilding stocks and the German stock market
Sector #1: Homebuilders (XHB)
The Annual Seasonal Trend chart for the State Street SPDR S&P Homebuilders ETF (XHB) is entering a favorable period that extends from Trading Day of the Year (TDY) #217 through TDY #236. For 2025, this period extends from November 12th through December 10th.
The chart below displays the hypothetical growth of $1 invested in the S&P 1500 Homebuilders Index (which enjoys a roughly 0.99 correlation to XHB) during this period since 1995. A hypothetical $1 invested in this index during this period, every year since 1995, has gained 325%.
The table below summarizes the performance of the homebuilder sector during this period, from 1995 to the present.
XHB is presently trading below its 70-day exponential average. So technically, seasonality and price are not currently in agreement (which I prefer to see). Aggressive traders could consider a long position with a stop below the recent lows. Others might wait for the price to confirm a favorable trend before jumping in.
Sector #2: The German stock market
The Annual Seasonal Trend chart for the iShares MSCI Germany ETF (EWG) highlights a period that extends from Trading Day of the Year (TDY) #217 through the end of the year. For 2025, this period extends from November 12th through December 31st.
The chart below displays the hypothetical growth of $1 invested in EWG during this period since 1999. A hypothetical $ invested in EWG during this period, every year since 1996, has gained 179%.
The table below summarizes EWG's performance during this period since 1996.
Ticker EWG has traded sideways for the last six months. However, it just ticked back above its 70-day EMA, so seasonality and price trend are presently in agreement.
What the research tells us…
Will homebuilders resume an uptrend? Will the German stock market follow through to the upside after going nowhere for six months? Unfortunately, we do not have a crystal ball and cannot predict the future. That said, we can review history and note that both have a robust history of showing strength during the fourth quarter. Traders looking for an "edge" should look closely for opportunities to play the long side of these sectors as 2025 moves through its final quarter.