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Hot housing stocks are cooling off, and there could be more trouble ahead

Suddenly, housing stocks have gone from hot to not.

The iShares U.S. Home Construction exchange-traded fund, the ITB, has fallen more than 1 percent in the last week after advancing more than 50 percent year to date. The ETF is still the best-performing U.S. industry group ETF this year, according to an analysis from Bespoke Investment Group.

A relatively strong fundamental backdrop has set the homebuilders up for their hot streak, said Gina Sanchez, CEO of Chantico Global. She cited rising wage growth, consumer sentiment ticking higher and mortgage rates remaining historically low. Still, she spots emerging risks on the horizon.

"We have seen tightening inventories. Regionally, these are different stories. So what's happening in California is going to be different from what's happening in Nevada. However, that is going to continue to be a problem," Gina Sanchez, CEO of Chantico Global, said Tuesday on CNBC's "Trading Nation."

The pending tax bill also provides an air of uncertainty regarding mortgage rates on a state-by-state basis, she added.

Technically speaking, the charts of the housing stocks look strong, said Rich Ross, head of technical analysis at Evercore ISI.

Looking at a chart of the ITB, Ross noted that a slight pullback after a strong run is to be expected. Zooming out and looking longer-term, he noted that the ITB has recently emerged from a four-year sideways trading range despite its recent lagging.

"What we know about technical analysis is when we emerge from these patterns, whether it's a multiyear range or a multiyear base, the moves coming out of that pattern tend to be larger in both duration and magnitude than people anticipate. That's what's going on here with the homebuilders," he said.

The ITB was modestly lower in Wednesday trading.

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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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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