With the underlying fundamentals looking better, ITB may no longer be a falling knife.

From a high of $50.38 on February 18, the iShares U.S. Home Construction ETF (NYSEARCA: ITB), touched a low of $22.33 on March 16, 2020. Peak-to-trough, that was a fall of nearly 56%.

ITB is the largest ETF in the home construction space. It provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It currently has assets of $707.64 million and charges an expense ratio of 0.42%.

ITB may be ready to rebound, on account of both technical and fundamental factors. (ETF Trends)

The cause of the carnage

The ITB ETF was crushed with the rest of the market in the massive equity rout triggered by the coronavirus.

Factors that were specific to the home construction sector also worked against it. The chief concerns were social distancing norms and the possible lack of home buying power due to recessionary conditions and rising joblessness.

Another factor was that the virus had hit near the peak home-buying spring season.

Johnson: the worst may be over

However, according to Craig Johnson, senior technical research analyst at Piper Sandler, ITB may have carved out a bottom near an important support level. Besides, he appreciated that the top holdings in the ETF had individual charts that looked “constructive.”

Johnson was speaking on the show “Trading Nation” on CNBC.

Besides, on the macro front, things were looking up for the sector. Some months down the line, ultra-low interest rates, a supply gap of homes and emerging demand from millennials could see a resurgence in values.

Other positive factors for ITB

Separately, there appears to be no financial distress in the sector due to the virus and from the attendant social distancing, yet.

Besides, one important differentiator is that the sector is not where it was in 2008. That crisis was triggered by a collapse in real estate prices that turned underlying loans sour. This time the causative factor is a pandemic, and it is unrelated to the real estate market.

In such a case, when the situation normalizes, there could be a very quick, rubber-band recovery in home construction ETFs, especially ITB.

One takeaway was during the huge stock market rally that took place on March 24. Gains among homebuilder stocks were impressive, with Toll Brothers (NYSE: TOL) rallying 39% and KB Home (NYSE: KBH) notching up a 38% gain.

Maybe those gains were shortlived, but the message is clear.

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