Despite extreme recent strength in select homebuilding names, sentiment remains very skeptical.  RYL, LEN, and KBH all have over 20 percent of their float sold short.  Additionally, each of these names have more "hold" and "sell" ratings than "buys."  The fact that the market has yet to acknowledge the strength in these names leads me to believe they'll continue moving higher.

As Bryan mentioned, homebuilders look very nice here.  We've liked these names all year, as housing was one of our top sectors for the year to kick things off in '12.  What is important to remember though is the XHB isn't just homebuilders.  It also has names like Home Depot, Bed Bath & Beyond, and Masco as components.    

The $20 area is also important, after the XHB carved out a bottom in early 2009 around the $10 area.  Those that bought the bottom might be tempted to take some profits at double their investment, which would be in the $20 area.  $20 acted as resistance in April 2010 and again in May 2011.  Since the breakout above $20 in March 2012, there has not been a monthly close below this round-number level, although there have been numerous retests.

Over the past several years, March and April have been significant months for XHB. Currently, more than 21% of the ETF's float is sold short -- so if there's a positive catalyst for builders that sparks some short-covering activity, XHB might have a chance to mark some summertime milestones, for a change.