XHB Homebuilder ETF Chart Analysis: Bearish Signals

I've been watching the rounding top forming on XHB the Homebuilders ETF for awhile now. It has signaled bearish again on a major level failure and trend support breakdown. It is a triangle that just broke down. You can see the top formation and major levels crashed through. I am bearish on the price and expect it to test $77 next and likely lower. Here is the long-term chart where you can see the long-term uptrend support it can fall back to.

Here is a 3 month chart analysis that shows the trend breakdown clearly and major level rejection.

XHB Chart Analysis: Homebuilders ETF Rounding Top

I drew a long-term internal trend line on ETF XHB and it shows that there is room to fall on the downside. It is still in an uptrend but got short-term overbought. The housing industry was down today even as large gains in tech and semi's came.

When we zoom in on the chart there are clear support levels that have been broken. This breakdown has confirmed a "rounded top pattern". I see a short setup on homebuilders and a move down to trend support as the target. The major names like DRH, BZH, LEN are tracking pretty closely. I'm going to watch Lumber Liquidators Flooring ticker LL to see if it can actually hold this bull flag. If not and a breakdown below $3.75 occurs I think it is a good short as they have struggled with the fundamentals.

Alphabet GOOGL Rounding Top Pattern Signals

Last year I did another post on a rounding top pattern with energy ETF XLE. Those levels ended up being THE top in XLE last year.

I've been watching Alphabet (GOOGL) stock closely since I discovered AI chat bot search in the beginning of the year. My first use of AI LLM's was with ChatGPT from the OpenAI website. It really got interesting when I discovered Microsoft Bing's chat search. It was like Google on steriods because you can get much more focused results much more quickly. Google search now has viable competition that is superior in many ways.

How long it will take AI assistants to catch on to the masses is the question. Wallstreet is slowly catching on to this tech trend and is downgrading the stock as management hasn't fully given answers to how AI search is going to impact their searches. I still think the risk to the search moat is far more key here than how Google itself will change its search pages.

As I show this chart on GOOGL I will also explore rounding top pattern trading strategies and techniques.

Above we see a daily chart of Alphabet that highlights the formation. What happened is the price hit a wall of resistance at 126.43 first then attempted to breakout but failed at 129.04. It was a classic bull trap. A bull trap is when the stock appears to want to go higher as bulls jump in but quickly reverses and goes down instead. The breakout in this case was a "failed signal". Failed signals in trading markets can be much more powerful than a regular signal. It means many market participants got caught on the wrong side adding pressure to the reversal.

The next thing that happens with rounding tops is price starts to downtrend. We saw that beginning on 6/22 as price opened up lower than the previous days close. Support indicated by the bottom horizontal red line was broken from way back in May. One method of trading a support line is to simply short the stock when it goes below the key levels that make it up. With tech incredibly strong this year I thought it wise to wait for some kind of confirmation the stock was going lower first. I saw a retest of that support line as price tried to make it above it again. It failed two days in a row. It is now in a clear down channel as you can see in the second pic.

Personally, I don't use any indicators with rounding tops. I do use bollinger bands (20,2) with high momentum quick spiking stocks that are topping out. Those are spike tops or pipe tops. I like entering a trade around a clear stop level. Today as price touched the upper channel line there is a clear place to cut the trade if it breaks above the line. Cutting losses fast is smart as far as trading rules.

In summary, this is a textbook rounding top pattern here on GOOGL stock. I am bearish on Alphabet over the short-term and long-term.

Full disclosure: I am short GOOGL with put options.

XLE Technical Analysis Rounding Top Pattern

This is a confirmed rounding top pattern on XLE now. Short bias. XOM is similiar.