Three ETFs to Buy on Weakness (XHB, GEX, IAT)

The Dow Jones Industrial Average hit a new all-time high last week, the S&P 500 is on pace to join it to kick off the week. While there are numerous ETFs hitting highs along with the major indices, there are even more that are lagging behind the market and have been hurt by sector rotation the last few weeks.

Three such ETFs have finally found support and based on the charts and the fundamental outlook it could be time to buy ahead of a potential breakout in the laggards.

The SPDR Homebuilders ETF XHB would at first glance appear to be a basket of homebuilding stocks. That is not reality as only 27 percent of the ETF is composed of companies that build homes. The remainder of the ETF is spread between home products, home furnishings, appliances, and retail. The ETF had pulled back over 11 percent from a multi-year high before finding a floor late last week. The low happened to coincide with the low of 2014 and the ETF promptly rallied, creating a bullish double-bottom pattern. If the housing markets slow recovery continues it could spread to all the sectors that make up the ETF.

Green energy stocks have had a wild ride the last few years as the moved from momentum plays to a business that seems somewhat viable. The Market Vectors Global Alternative Energy ETF GEX is a basket of 30 stocks in the solar, wind, battery, and related alternative energy sectors. Only 61 percent of the stocks are based in the U.S., with Denmark and China making up 22 percent of the allocation. A 12 percent pullback from a yearly high ended last Thursday, just above the low of April and the ETF has started to rebound. Investors that believe there is money to be made in the green energy space could view the pullback as a long-term buying opportunity.

Both the large financial institutions and the regional banks have had a tough few months for varying reason. The iShares U.S. Regional Banks ETF IAT hit a five-year high in March before pulling back 9 percent to a low hit last week. Over the past few days the ETF has been forming a base, as the selling appears to have subsided. The one overwhelming positive future catalyst for the regional banks is that they will not be as affected by rising interest rates as some of their larger peers. On top of that, their business model is much easier to decipher than that of the large institutions. Technically the ETF continues to remain in the uptrend even after the pullback, which is a bullish and considered a buy signal.