This chart shows the red-hot housing trade may be on shaky ground

Homebuilding stocks have been some of the hottest postelection trades, but there's a chance that they could be standing on some shaky ground.

While the homebuilders have surged more than 9 percent since the election thanks, in part, to strong earnings and an improving economic outlook, the stocks have retreated in the past week and a half. But the troubles have been building for the last few years, according to Oppenheimer technician Ari Wald, who describes "mixed signals" in the charts of the home construction ETF ITB.

"The lower relative highs over the past few years do indicate a more questionable long-term trend," he said Monday on CNBC's "Power Lunch."

The ETF holds well-known names such as Pulte and Toll Brothers, both of which have seen fairly large drops in December along with construction company Lennar. Home Depot is also among the largest holdings and one of the only big stocks in the ETF that hasn't seen a significant December decline.


On the other hand, Harvest Volatility Management partner Dennis Davitt believes there's still room to run for the homebuilders, especially given the industry outlook.

"[The homebuilders] will get you exposure to the broader market," Davitt said on "Power Lunch." "The reason I like that is because with everything that's going on in the marketplace right now, I don't think the rise in mortgage rates is going to outweigh the rise in confidence."

One stock that Davitt likes in particular is KB Home, currently up more than 32 percent year to date and down only slightly from its 2016 high.

Disclaimer


Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect