Ahead of the housing starts report, XHB (Homebuilders ETF) shows increasing short positions alongside rising stock prices, signaling a potential shift from a momentum to a reversal strategy. Historically, housing starts reports drive 20% more volatility for related stocks. Using the Black APP {APPS BLACK<GO>} on the Bloomberg Terminal we analyze housing trends ahead of the report.

The new housing starts data is being released today.

The long-term trend for XHB (homebuilders ETF) is that short positions decrease when the stock price rises and increase when the stock price falls, following a mirror image pattern. This reflects a momentum strategy of buying on the way up and selling on the way down.

Recently, this trend has reversed, with both the stock price and short positions increasing, indicating a potential shift toward a reversal strategy.

This behavior may suggest bearish sentiment in the short market ahead of the housing starts report, while the broader stock market remains bullish.

We can quantify the market movements on the day housing starts are released. Typically, the ETF and related stocks experience about 20% more volatility on this day compared to ordinary days.

Generally, in the week leading up to the housing starts announcement, short positions decrease by 1%, and in the week following, they drop by 2%, reflecting a bullish attitude before and after the report. However, this time, short positions are increasing.

HD shows stock strength with a falling short position indicating bullishness

The rising short interest and stock prices in XHB ahead of housing starts indicate a shift toward bearish sentiment. With increased volatility expected, market participants should watch for potential reversal strategies to unfold.

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