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Monday’s monster sell-off is sending interest rates into a tailspin. After hitting a brand-new all-time low Friday, the U.S. 30-year Treasury yield is continuing to fall, while the yield curve slides closer to inversion territory.
The broader equity markets are feeling the pain as well, but there is one group of stocks for which the rate rout might be a golden opportunity, according to Carter Worth, head of technical analysis at Cornerstone Macro.
“Anything that is obviously rate sensitive, or inversely correlated has an opportunity to continue to do well if, and as, rates continue to plunge,” Worth said Friday on “Options Action.”
One of those rate-sensitive plays is the homebuilder space. The Home Construction ETF (ITB) and the S&P Homebuilders ETF (XHB) have pulled back only slightly in Monday’s sell-off compared with other stocks, and are off to healthy starts in 2020. But while you could make a pure homebuilder play, Worth said there’s another way to get in on this space.
“We have a circumstance, and while it’s not a home construction stock, there’s a lot of correlation between Home Depot, Lowe’s and some of the other big, related names. [Lowe’s ] up 20% versus [The ITB] 40%,” said Worth, “and so I think that’s the opportunity.”
Worth thinks the technical setup in Lowe’s is showing that the stock is primed to make a run at the ITB, and that this may be the very beginning of a significant breakout.
“We’ve really moved into this wedge and we are just starting to come out of this formation,” said Worth. “We know how extended stocks can get. A lot of stocks have blow-off tops, that’s the kind of thing that could be setting up here.”
Lowe’s was trading about 2% lower in Monday’s session.