Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’m featured in the book Market Wizards, alongside investors like Paul Tudor Jones.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

As we count down to the Fed’s next meeting, it becomes more likely they’ll raise rates by 0.5%…

Especially after the Consumer Price Index (CPI) data released last week showed inflation running out of control at 7.5% (a 40-year high).

Given big tech’s sensitivity to interest rates (and their dominance of the major indices), we’ve seen how anticipation of higher rates rattles the stock market.

In January, the S&P 500 fell around 12%.

However, it wasn’t just the big tech stocks that were feeling the heat…

Today, I want to revisit the iShares U.S. Home Construction ETF (ITB) because it’s right on a key price level. ITB dropped by over 20%, and you can see just how dramatic that fall was in the chart below…

iShares U.S. Home Construction ETF (ITB)


Source: eSignal

ITB rallied strongly from October to December and then peaked at ‘1.’ After a quick, sharp selloff down to the upper orange line (A), ITB bounced back and formed a slightly lower high at ‘2.’

However, when we last looked at ITB (red arrow), it fell sharply (from ‘2’) and retested support at ‘A.’

We then discussed how the share price falling through the 50-day moving average (MA – blue line) indicated the potential emergence of a bear pattern.

To confirm the downtrend, the 10-day MA (red line) needed to cross down over the 50-day MA.

If ITB broke through support at ‘A,’ then that would signal that the downtrend is gaining momentum. And the next key price level would be its October low at ‘B’ (lower orange line).

That’s exactly how it played out…

After breaking lower from ‘A,’ right now ITB is bouncing along and trying to hold support at ‘B.’ As the chart shows, this support level goes back to June 2021.

And although not depicted on this chart, it’s the same level that was formerly resistance (in mid-March 2021) before the rally in ITB broke above it (changing resistance into support).

Remember, the longer a level holds, the stronger that level becomes. And it will be a big deal if that level breaks.

That’s why I’m watching the current support level so closely…

iShares U.S. Home Construction ETF (ITB)


Source: eSignal

A break below support at ‘B’ could see ITB retest its lows from early March around $57. It’s the kind of move that could offer the potential for a short trade.

The other thing I’m watching is the Relative Strength Index (RSI)…

From ITB’s high at ‘1’ to its lower high at ‘2’ (and subsequent fall), you can see that the RSI was trending lower (showing declining momentum). That fall in ITB saw the RSI go all the way from overbought (above the grey horizontal line) to oversold (below the lower grey line).

Since going into oversold territory on January 21, the RSI has been creeping higher.

We know that for ITB to have any chance of breaking into an uptrend, the RSI will first need to break above its resistance level (green line).

Then, the 10-day MA breaking above the 50-day MA would confirm that trend. We can see that when both of these scenarios played out in October, ITB went on to rally strongly…

Right now, we’ll leave any potential move like that for the future. The immediate (and most important) test for ITB is to first hold its current support level.


Larry Benedict
Editor, Trading With Larry Benedict

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