This hot group of stocks is pennies away from a ‘critical’ level, strategist says

Housing stocks are on a tear so far this year and could see further upside should the group break a critical technical level, according to one equity strategist.

The iShares U.S. Home Construction ETF (ITB), up 8 percent this year, is outperforming the broader market by a little over 3 percent.

Miller Tabak managing director and equity strategist Matt Maley said in a recent interview that the ITB, comprised of homebuilders and construction stocks, is close to hitting the $30 mark; that's been "incredibly important resistance" for the exchange-traded fund.

"On a technical basis, it's at kind of a critical juncture here," Maley said Wednesday on CNBC's "Power Lunch," pointing to a chart of the ITB, which closed Wednesday at $29.74 per share.

"It got right up to it in 2015, got right up to it in 2016. Each time, it couldn't break above it. So if it can finally break above it, it should attract some of that momentum money that can fuel it higher," Maley said.

Breaking meaningfully above the $30 level would be very positive for the group often hinged on economic conditions.

The National Association of Home Builders February survey, released Wednesday, posted numbers that fell month over month. While the estimate was for "no change," wrote The Lindsey Group's Peter Boockvar, the index fell two points to 65.

"This index has now given back 4 of the 6 pt post election jump over the past two months but still remains well above the breakeven of 50," Boockvar wrote, noting too that prospective buyers traffic fell.

These data come along with more potentially concerning news for the group: Mortgage application volume dropped 3.7 percent on a seasonally adjusted basis week over week, the Mortgage Bankers Association reported Wednesday.

However economically sensitive the group may be, first-time homebuyers appear to be returning "much faster" than the markets are pricing in, according to Stacey Gilbert, head of derivative strategy at Susquehanna.

"Yes, the talk about these increased rates is definitely going to give it a little bit of headwind here, but we think eventually the numbers will show it," Gilbert said Wednesday on CNBC's "Power Lunch."

And as far as investor sentiment goes, Gilbert hasn't observed any indications that investors are getting "nervous," she said.

"They're not buying protection, and they're not suggesting that upside is limited. That being said, it is certainly not the 'trade du jour' where everybody's focused," Gilbert added, saying the "run" for housing stocks is not over.

She also marked D.R. Horton and Lennar, the top-weighted holdings in the ITB that together comprise nearly 24 percent of the fund, as stocks to buy.

Maley added that if D.R. Horton, which is up over 12 percent this year, continues rising, it could also lift the ITB.


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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.

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