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The last two times this happened, homebuilding stocks rallied double digits: Chart analyst

Homebuilding stocks surge as sentiment climbs to pre-pandemic level. What's next

Homebuilding stocks have been building on their gains.

The group inched higher in Friday's premarket trading session after homebuilder sentiment rose to record highs, a sign that business was seeing a significant recovery from coronavirus shutdowns.

The chart of the iShares U.S. Home Construction ETF (ITB), which tracks the group, is equally encouraging, Miller Tabak chief market strategist Matt Maley said Thursday.

"A lot of people forget because of the way the tech stocks have acted recently that most of the market has been stuck in a sideways range for the last couple of weeks, and the ITB has been no different," he said on CNBC's "Trading Nation." 

After the sentiment report, it is now "breaking out to the upside" and adding to a series of higher lows and higher highs, both encouraging signs for chart analysts, Maley said.

"On top of that, we have the ITB experiencing a golden cross. That, of course, is when a rising 50-day moving average crosses above a rising 200-day moving average," he said. "The last two times that happened — in 2019 and 2017 — the group rallied another 60% and 40%, respectively. So, on a long-term basis, that's very, very bullish as well."

Maley's one caveat was tied to a key piece of the home construction story: lumber.

"Lumber's come down quite a bit the last couple of days after it reached its most overbought condition on its RSI chart, its Relative Strength Index [momentum] chart, ... since 1993," Maley said.

"Lumber tends to be a good leading indicator for the housing stocks, so, you may see a little bit of a pullback here over the very near term," he said. "But right now, on a technical basis, anyway, the group looks very, very good."

John Petrides, a portfolio manager in the wealth management division of Tocqueville Asset Management, saw three fundamental catalysts in place that could send homebuilding stocks higher.

"One is that interest rates will be lower for longer, which will help affordability," he said in the same "Trading Nation" interview.

"Then you're having the reverse of a multiyear trend of people who were moving into the city [moving] out of the cities and into suburbs," he added. "And if you want to sprinkle in the millennials reaching an age where they're going to be building and growing their own family, you have three factors there that could lead the charge in the housing market within the U.S. to go higher. And then that's good for the homebuilding group as a whole."

There seems to be little that can derail this group now, so another full-fledged shutdown is likely the biggest risk to the rally, Petrides said.

"If the country has to quarantine again … and we shut down the global economy again and we shut the U.S. economy again, that would take a lot of wind out of the sails of would-be potential buyers and it would defer and defray a lot of people moving to homes, and maybe you have more foreclosures and more supply comes on the market," he said. "So, to me, you need a repeat of March-April for the housing market to take it on the chin again."

Disclosure: Petrides owns shares of the SPDR S&P Homebuilders ETF (XHB).