In 2025, We’re Already Banking Profits

By Larry Benedict, editor, Trading With Larry Benedict

Mega tech stocks enjoyed the market’s 14-month bull run. But they weren’t the only ones to benefit…

That rally also caused home construction stocks to soar.

The SPDR S&P Homebuilders ETF (XHB) rallied around 80% from October 2023 to its recent highs.

It even outperformed tech juggernauts like Apple (AAPL) and Microsoft (MSFT) over the same period.

Yet XHB failed to break through resistance from September to October last year. And it slipped down in early November. Then when buying momentum sank, XHB rolled over and plunged.

But XHB’s losses from that peak rapidly approached 20%. And that down move looked overdone.

Plus, there was a developing chart pattern that suggested a reversal could be forming.

So, we took the opportunity to capture a rebound by buying a call option.

We entered our position last Friday. Then we closed it out on Tuesday for a 48.2% gain.

So today, let’s check out how we did it…

Unable to Gain Traction

In the chart below, you can see XHB’s resistance level (green line). Despite piercing that level several times, XHB was unable to gain any traction.

Then XHB pulled back as the Relative Strength Index (RSI) fell into the bottom half of its range…

SPDR S&P Homebuilders ETF (XHB)

Source: eSignal

(Click here to expand image)

As XHB continued its fall, the RSI bottomed out in oversold territory (lower gray dashed line).

Then XHB started making lower lows (upper orange line) while the RSI made higher lows (lower orange line). When we see a pattern like this, it often precedes a turn higher.

It becomes increasingly difficult for a stock to keep falling when buying momentum is rising.

So on January 10, we bought a call option to take advantage of a bounce.

As the chart shows, we made the right call. On Monday, XHB rallied… then gapped higher the following day.

Our position was profitable, so we decided to close out our trade for a 48.2% gain on Tuesday.

Take another look:

SPDR S&P Homebuilders ETF (XHB)

Source: eSignal

(Click here to expand image)

Of course, XHB rallied even further on Wednesday. So we left some profits on the table.

But XHB could have just as easily rolled over and fell.

And if we’re happy with our profits, it’s never a bad idea to take them off the table and move on to the next trade. Few things are more frustrating than holding out for extra gains only to see the trade turn into a loser.

By banking our profits when we see them, we’ve pocketed gains of 18.1%, 14.4%, 48.2%, and 65.0% already this year for subscribers of The Opportunistic Trader.

Better still, even more opportunities are ahead.

And while not every trade is going to be a winner, I’m really looking forward to what we’ll achieve in The Opportunistic Trader in 2025.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict