July 27th, 2010

Climbing Out of the Boxes With REITs

It’s as if the powers that be down on Wall Street read my last posting and decided that the second of the four nested trading range boxes was as good a place as any to pause in the very early phases of an upside move.

The market broke out of the inner most box and advanced only as far as the the second nested box. It’s reasonable to expect that some time (week or so) will pass before the market attempts to scale to the next box. Remember, these boxes were draw within the context of a discussion of trading ranges – the market is attempting to climb beyond the trading ranges that have been inhibiting any sort of upside momentum type rally since September 2009. We’re all cheering for its ultimate success. Let’s review with an updated version of the chart as of 11:15 this morning (click to enlarge image):

Having said that, I’m looking forward to a mid-term election year rally as we approach November. In that vain, a host of stocks now look poised to move beyond consolidation patterns and resistance trendlines that extend back to last September; one excellent example are the Residential REITs. While many of these charts merely show a descending trendline, a pattern that I put less faith in than a horizontal trendline, a break above even these unreliable resistance levels could lead to higher prices – and many pay nice dividends in the meantime. Here are a few examples:

  • SNH (Seniorhousing Properties) – dividend 6.5%
  • AEC (Associated Estates Realty) – dividend 5.0%
  • HME (Home Properties) – dividend 4.8%

Do the charts look similar? Of course they do because the macro-economics and the market supply/demand dynamics pretty much trump factors impacting each company individually. I believe every portfolio should have some real estate exposure, even after the collapse of the bubble, and a couple of REITs like these are an excellent way of doing so.

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