January 8th, 2015

Money Flowing to REITs

imageThe market closed on Tuesday 2002.61, down for the fifth trading day in a row, a total of  the total of 4.2% since peaking at 2090.57 on 12/29.  One of the notable highlights of the day, however, was the stellar performance of REITs.

There is a universe of approximately 4000-5000 stocks from which investors to choose but the selection process is daunting since your goal is select a stock from among the 50% that will appreciate and outperform your benchmark index over your investment time horizon.  The best process for winnowing down the list to a more manageable number is by scanning the universe of all stocks against a number of criteria.

Readers and Members know that my favorite scan is called “Stocks on the Move” (I first wrote about this in “Stock Picking Now Feels Like Shooting Fish in a Barrel” just after the Financial Crisis bottom on July 23, 2009) and combines the following technical and fundamental criteria:

  • Price per share > $15
  • Relative Strength Indicator today > top 50%
  • MoneyStream Surge for past week > top 50%
  • EPS percentage change from 4 qtrs back > top 50%
  • Volume surge over past 5 days > top 50%
  • Daily Percentage Price Change > top 50%

[MoneyStream is a Worden Bros. indicator that grew out of joint venture with a large regional brokerage firm to develop a price/volume indicator similar to on-balance volume (OBV) and is interpreted in the same way you by looking for divergences between price and volume trends.]

Yesterday’s “Stocks on the Move” scan filtered out only 108 stocks as compared to the average 250-300 stocks that appeared on the similar lists throughout December.  Notably, about half the stocks on yesterday’s list were REITs, primarily because among all stocks, they were the biggest price movers for the day, had the largest surge in volume and were the best performers relative to the S&P 500 for the day.

Adding to what makes these securities so interesting is the similarity of their charts. Many of these REITs have clearly trending higher appear to have recently crossed out of consolidation patterns, above upper boundary resistance trendlines.  Some of the 40 REITs making the cut yesterday included (click on symbol to see chart):

  • Retail
    • SKT (Tanger Factory Outlet)
    • SPG (Simon Property Group)
    • EQY (Equity One)
  • Residential
    • AEC (Associated Estates)
    • SNH (Seniorhousing Properties)
  • Office
    • OFC (Corporate Office Properties)
    • COR (Coresite Realty)
  • Healthcare
    • SBRA (Sabra Healthcare)
    • OHI (Omega Health)
  • Diversified
    • BDN (Brandywine Realty)
    • RPAI (Retail Properties of America)

March 20th, 2012

URE: A possible rocket ride

As regular readers here know, I’m a frequent critic of Tom Knight, creator of the Slope of Hope blog.  For example,  on February 14, a guest blogger to the site commented that the the market has risen too far and diverged too far from its 400-dma such that there’s no questions “if this debt-filled balloon will disintegrate, but when“.  The writer’s premise is that the several times in the past when the Index has diverged as far as it has from its 400-dma have all been followed by a drop or correction.  As of today, the S&P 500 is approximately 4.0% above the 1350.50 close that day.  According to my analysis,

“The S&P 500 Index is currently 6.38% above the 300-dma.  In the 12,089 trading days between March 12, 1963 and March 11, 2011, a spread between the index and the 300-dma of 5.00-7.99% occurred on one out of every 6 days, or 16.89% of the time.  One could almost say that this spread is “typical”, not large or overbought or stratospheric.”

Today, Slope of Hope featured the following chart on URE and Knight writes:

“Below is URE (the double-bullish on real estate ETF) with three nice inverted head and shoulders pattern. On one hand, yes, there was a lift in each of these instances, but on the other hand, the lift was either very short-lived or, if it did persist, was choppy and not especially profitable. Past behavior on specific instruments with certain patterns can be helpful in anticipating what subsequent patterns on the same instrument will do in the future.”

What?!  There are two continual problems with Knight’s chart analysis: 1) the time horizons and trading style are usually too short-term and 2) he makes a conclusion and looks for chart images for proof rather than looking at a charts from a range of time horizons and then drawing a conclusion from them.

It’s truly amazing how different the same information in a chart can appear when one changes the scaling and looks at it from a number of different time horizons:

I arrive at a totally different conclusion that the Slope because of my longer term perspective.  I see dozens of pivot point areas over the past 4 years at four key levels: 35, 51, 64 and 115.  These levels aren’t “Fibonacci” levels; rather they are key areas where the ETF has reversed direction (either up-to-down or down-to-up) several times.  The balance of control has changed hands from bulls to bears or from bears to bulls.  Even more importantly, when it hasn’t changed hands at one of those levels, the ETF has launched a longer and more extended trend.

The ETF is at 61.27 and approaching 64, the level where it reversed twice before.  The more important point that I would have focused on (a point that Knight didn’t comment on at all), is that a cross of 64 would carry the ETF into near a near void, territory through which it passed like a meteor through outer space.  During the worst of the Financial Crisis Crash from October1, 2008 to November 20, 2008, URE declined 86%!  If it closes back above the outer limits of its current atmosphere, which I estimate to be around 64, then it will reenter a space where there it will face little friction.  One could easily say that had it not been for the Greece and the Euro crisis last year that derailed it, URE could have been on its way to 115 last year.

There’s no way to predict what will happen to URE above 64 but to not mention it, to not see that event as a potential quick and dramatic profit opportunity is a huge oversight.  Rather than a very short-lived or choppy and not especially profitable possible outcome, I see a potentially huge, longer-term windfall profit opportunity. But of course, if you are a day-trader, or a trader who looks for a quick 5-10% profit, then you can be excused for not seeing those rare, 100% multi- month or year trade opportunities.