January 27th, 2012

VTR and REITs: Awaiting Resolution of “Great Convergence”

As discussed in the previous post, the market is at a crucial juncture, something I have labelled “The Great Convergence”.  The confluence of risk and opportunity is seldom as obvious as it is today.  Many of the risks still hang over our heads (need I mention Europe sovereign debt, U.S. election season, renewed U.S. budget debates, housing market still on its back, another round of debate about healthcare, etc.) yet each, through the prospect of their ultimate resolution, presents impetus offers another reason to be bullish.

The Convergence is evident as the apex of the huge symmetrical triangle that has formed over the past 4-5 years in chart of the S&P 500 Index since 2007.

One sector that safe for waiting for more certainty are the REITs.  With the Fed announcing that they foresee low interest rates through 2014, the yields available in REITs still looks competitively attractive, even though the stocks continue to appreciate without any significant correction.  One stock that seems to fit that description is VTR (Ventas Inc).  With a dividend yield of 3.9%, VTR appears to be a stock in which one can sit and wait until the direction out of the Great Convergence is clear.

Rather than mimicking the chart of the S&P 500, VTR recently broke above a significant 5-quarter resistance trendline.  That may be considered a consolidation cup-and-handle after the long run from the reversal pattern at the bottom of the Financial Crisis Crash.  If it turns out to actually be a consolidation, then the next move could take the stock up to around 100 using the charting rule-of-thumb that a consolidation is at the mid-point of the move (the move after the consolidation should approximately equal the move before):

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