Markets Soften As Profit Taking Comes In

I'm expecting a pullback starting Friday in the US stock market. After a 14 day run that saw the S&P 500 futures (ES) contract go from 665 to 830, there is some selling due. Buy the next volatile shakeout and do not chase going up.

S&P 500 Futures Contract: Sell Short Term

I look for ES to pullback into the 780 area where it will likely just sit there with low volatility then increase as the first week of trading in April begins. Volume today on the ES has been very low with little buying interest.

Shares of Citigroup (C) are down 5% today and are no where near the lower end estimate I expect to hit on this pullback.

XLF, the Financial Select Sector Spyder is getting slammed consistently at the $9.50 area further suggesting a pullback is in order. I'd look for it to take a dip below $8.50 levels.

In other news

President Obama is due to meet with the G20 finance ministers in London next week. The downturn in the global economy has seen a rise in G20 protesters.

Top banking officials are meeting with President Obama Friday in a closed door session to discuss the state of the banking system. CEOs from Goldman Sachs, Bank of America, American Express, JP Morgan, Freddie Mac, State Street, Bank of New York, PNC, Wells Fargo, Citigroup, US Bancorp, Northern Trust and the American Bankers Association are in attendance.

Crude oil futures continue to trade above the $50/barrel mark at $52.35.

Sector Focus: Home builders and the XHB ETF Spyder

The nations number 5 homebuilder, KB Homes (KBH), reported a 1st quarter loss of $58 million above analysts expectations. KB cited orders rose 26% but sees revenues continuing to be soft for 2009. Looking around the net I came across Richard Widows of TheStreet.com suggesting not to purchase homebuilder stocks just yet. Widows cites that analysts expect the homebuilders to be unprofitable for 2009 and only half to be profitable in 2010.

Investors wanting to trade a broad basket of this sector can look at the XHB Homebuilder ETF consisting of a basket of companies including:

Bed Bath and Beyond (BBY)
Home Depot (HD)
Legget Platt (LEG)
Lennox (LII)
MDC Holdings (MDC)
NVR (NVR)
Pulte Homes (PHM)
Rent A Center (RCII)
Ryland Group (RYL)
Sherwin Williams (SHW)

Looking at the monthly chart going back to 2006, we can immediately see the XHB ETF still in a downtrend. Those looking to trade XHB would be best to look at this as a position trade looking for $1.50 moves on either side. Investors should wait until a definite breach of the downtrend is broken and then wait for a pullback.