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)

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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September 2nd, 2010

Cooking Up An Inverse Head and Shoulder Reversal

After posting the following, I got to thinking. I say below that I will be adding to long positions and reducing cash as the market proves itself and continues successfully moving to ever higher levels. A break above 1128 and I could be fully invested.

But that flies in the face of those who are bearish about this market. They’re strategy would, instead, welcome every upside move as an opportunity to sell stocks at higher prices than they ever hoped they could and that by the time the market touches the upper end of the trading range (however, that may be defined) they intend to be 100% in cash.

It’s the old strategic choice between buying at the bottom of a range/selling at the top and waiting for a break above a range before buying. But this time it’s played out on the larger stage of market timing. I’d be interested knowing what your view is?

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What can I say without it sounding too much like I’m bragging. The market performed beautifully yesterday (if your one of those leaning to the bullish side of this boat we’re floundering in) and seems to have followed through today.

Having said that, there isn’t enough evidence yet to jump in with both feet. With the market closed Monday for Labor Day, at 1090 the market is just barely above the converged 50- and 300-dma’s. Another 3.5% move up above 1128 and the market would cross what I’ve indicated to be the neckline of an inverted head and shoulders pattern. Each advance causes me to move even closer to a 100% invested position (click on image to enlarge).

I know I’m going to be criticized yet again for being too optimistic or pallyannaish but I’m looking forward to the possibility …. now perhaps 60/40% …. that the market also will hit and cross above the major, long-term descending trendline that stretches all the way back to October 2007. Granted, yesterday I took you through the risks inherent in upward-sloping trendlines so I’m well aware and prepared that after a crossover, should it happen in the first place, there will probably also be a retreat back to the trendline to test its strength as support and, in the process, generate another downward sloping trendline to replace the current one.

In “Climbing Out of the Boxes With REITs” of July 27, I included 3 residential REIT charts – SNH, AEC and HME. Each has down well since then. There are many other REITs breaking out of well-formed consolidations:

  • EDR (Education Realty)
  • SUI (Sun Communities)
  • EQR (Equity Residential)
  • ACC (American Campus Communities)

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.

March 6th, 2010

Your Watchlist – Part 4: Stocks with Good Charts

On November 9, in “One View of Market’s Future”, I accurately predicted the market would stall at 1150 and laid out the following game plan:

  • The market begins to stall out in December as:
    • the door for the sidelines-money slams shut for the year
    • tax selling begins to capture losses and record gains in anticipation of possible higher 2010 tax income rates
  • The 1150-1200 is a critical area for past pivot points where the market turned in 1998, 2001, 2002, 2004, 2005, 2006 and 2008. These pivots occurred both when the market was trending up and down.
  • The turn is usually caused by an economic catalyst and one that could fit the bill perfectly would be:
    • The $US Dollar firming and possibly reversing its descent.
    • The “Soft Dollar Trade” (buying foreign currencies, gold and commodities), considered by many as “over-crowded”, begins to unwind and the market begins to decline.
  • A logical target for the bottom of this correction is the neckline of the market’s inverted head-and-shoulders bottom, or approximately 950 in the S&P 500, a 17% decline from the high.
    • The decline falls within the definition of a correction falling short of the 20% required to considered a “Bear Market”.
    • The Index will find support on the 200-DMA, the crossing of which is a key indicator identifying Bull and Bear Markets
    • The 200-DMA will have crossed the 300-DMA by then
    • The 300-DMA will have turned up, the final hurdle before the book on the Crash can be finally closed.

Now, four months later, that forecast appears to have been unbelievably accurate, if I do say so myself. The market peaked in early January at 1150 and the dollar has appreciated 7.18% against a basket of other currencies (.DXY).

One element, however, has failed to materialize – the shape and depth of the correction. Rather than the long awaiting 10-20% correction similar to the one in 2004 that many were expecting, there’s been a lateral, horizontal correction; does that qualify as a correction at all? Fortunately, I also outlined an incremental strategy for handling the correction when it came (see “Market Dominoes Beginning to Fall” of January 26) and, so far, the market’s resilience and knocking over only the first few the dominoes has prevented us from moving very far into cash.

Applying that same incremental approach to a market perhaps about to cross above 1150 and resume a bullish run (remember, our expectation that the next leg up would begin in Sept-Oct rather than now; see “Mid-term Elections in 2010 and the Stock Market” of January 28), we began assembling ideas for a watchlist. The final group consists of 109 stocks that have clear consolidation patterns out of well-formed bottom reversal patterns. After breaking above necklines or other resistance trendlines, many appear on the verge of breaking out of long consolidation patterns (channels, wedges, etc.) that carried the stocks back down to test the trendlines.

Many are asset managers, insurance, credit management and, surprisingly, REITs. The following are merely offered as typical examples. For a complete list, click here (click on image to enlarge):

  • AB (Alliance Bernstein)
  • LRY (Liberty Property Trust)
  • WRI (Weingarten Realty)
  • CBG (CB Richard Ellis)
  • BXP (Boston Properties)
  • BKD (Brookdale Senior Living)
  • CNA (CNA Financial)

I must confess, this is my favorite among the four groups because there are so many excellent charts to pick from, many paying unusually high dividends and some already having begun climbing to new heights.

October 12th, 2009

REITs and Energy: New Darlings

I have to travel again this week so my posts might be sparse. In the meanwhile, though, I recommend you take a look at a group that appears to be in the last stages of completing very distinct bottom reversal patterns: REITs.

Remember the “perpetual in-the-money call option” strategy of last November and February? It might be appropriate for resurrecting it and applying it to REITs. For example, here are some low-priced, high-volatility REITs; construct for yourself a basket (to spread the risk, a small, equal amount invested in each of 4 or 5) and there’s a good chance you might make a nice return even if one or two go further down in price:

  • MPG
  • AHR
  • BEE
  • SFI
  • GKK
  • CT
  • CBL
  • PEI
  • DDR
  • ABR
  • FR
  • LXP

These currently all sell for less than $10 and many still pay nice dividends.

As money on the sidelines continues to try find stocks that haven’t already been propelled to what many consider unsustainable prices, they may also begin pushing up the oil and gas, solar and various alternative energy stocks like coal and uranium. Here, too, clear bottom reversals have been formed and stocks are about to break, or have broken, out (see “Mysterious Happenings in the Oil Patch” and “SOLR: A Winner When Clean and Alternative Energy Heats Up“). Whether its part of the weak-dollar trade along with precious metals, energy stocks of all sorts (including the oil service stocks) are starting to heat up again.

Even as the market edges closer to a consolidation, a much needed midstream pause, there are still stocks that could have room to grow.

August 2nd, 2009

Where Were You At Obama’s Election?

That’s not intended as a political question but rather interest in your portfolio’s health since then. The reason for framing the question this way is because Friday was a watershed day: the market closed at 987.40, nearly the identical level it was on November 4, 2008, Election Day, or 1005.75. It closed up 39.45, or 4.08%, from the 966.30 pre-Election close and has not been as high since.

After careening down since last labor day, through the Lehman bankruptcy and the Merrill Lynch acquisition, market psychology was temporarily bolstered over the succeeding weeks by announcements of the G-7 meeting and decision for a coordinated effort “to combat the crisis including the use of ‘all available tools’ to support key institutions and prevent their failure.” (If you are a masochist and want to relive those awful days, click here for an excellent timeline of all the gory details assembled by the St. Louis Fed.)

When you look at those two Index closing levels, you might think the last 9 months has been a boring, flat market. Au contraire, my friends. There’s been the equivalent of a bear market with a 32.73% decline to March 9 and a booming bull market with a 45.96% recovery since March in between. How did your portfolio perform over the same period. Having an average 40% in cash over the past nine months, my portfolio has gained only a disappointing 3.5% from last Election Day, net of dividends, commissions, interest, gains/losses and additions/withdrawals.

So for me, and perhaps some of you, the game is just beginning again. I can drool at all the profits that could have been made if only I had been less fearful and jumped back into stocks in a big way soon after the bottom (see March 19, “The Debate is Settled: The Market Has Hit Bottom“). I sought a safe haven, found it in cash but may have stayed there a bit longer that I should have.

As an aside, remember the Coppock Curve, Mean Reversion and MTI Indicators. I last checked in on them on May 1; two months later they look even more accurate at predicting the bottom. Coppock got it right again as the Curve has clearly trended up since May:

And the Mean Reversion Indicator? It’s still eerily similar to the path off the 1973 bottom (as a matter of fact, see the predictions of May 1 for a July close of 999.60 vs. an actual of 987.48). I wonder how long that parallelism will continue:

Finally, the MTI gave an “all-clear” signal on June 1 when the Index crossed the 200-day Moving Average. But that’s all history. Where do we go from here? I focused on all the money that’s parked on the sidelines needing to be invested as a possible catalyst for further market appreciation. “Z”, a loyal reader, recommended the following references as support to this notion: “Six Good Reasons to Like Stocks” from Barrons on August 3:

“There will certainly be a ton of buying power available once any bear conversion takes place. Cash holdings amounted to about 95% of the value of U.S. stocks at the end of the first quarter. Paulsen argues that given the current environment of inflation and interest rates, this ratio of cash to market cap should stand at around 50%. That would leave, by his reckoning, nearly $5 trillion of cash currently sitting on the sidelines available to push stocks markedly higher.”

and “Parked cash hoard: Fuel for further stock gains?” from Fidelity Investments on June 22 (the numbers are different but the conclusion is the same):

“Although investor cash levels have fallen from their record high in March, their value is still equivalent to about 40% of the entire U.S. stock market. This level of cash—as a percentage of what it could purchase of the overall stock market—remains much higher than the 27% peak rate seen during the 2000-2002 bear market, and well above the historical average rate of 16%….the cash stockpile on the sidelines remains so much larger than it historically has been that it would only take a smaller percentage of stock market re-entrants (relative to past cycles) to provide a significant boost to stock prices.”

So where should we look for stocks to lead the next leg up. Which stocks were involved in the Bull Market of Spring 2009 and which ones might take us through the end of the year?

More than half the stocks in the Telechart database, 56.3%, were higher this past Friday than they were on Election day. But what was most amazing is that the sectors up the most are those you wouldn’t necessarily expect, like retailers. As Bob Doll of BlackRock calls it a “relief rally” where investors said to themselves “Maybe this isn’t another Great Depression, and I’m underinvested in equities — I have to participate”; the speculated on the stocks that had been hit the hardest. Paul Lim, in today’s NYTimes, interviews analysts who rationalize that large caps with good fundamentals will support the next leg up.

I’ll go with the laggards since Obama’s Election: Banking, Real Estate, Transportation, Energy, Chemicals and Consumer Durables. That’s close to 1000 stocks of which many have formed beautiful reversal bottom patterns they’re about to break above. I’ll post a spreadsheet for you tomorrow.

July 6th, 2009

Aiming for Dividends + Appreciation with REITs and Pipelines

Hope everyone had a wonderful 4th of July weekend holiday. I know we did because it was probably the first weekend without rain in about 3 months and, this morning, the sun’s shinning, the sky’s blue …. how bad could life be?

And then, of course, there’s the stock market. The correction everyone expected back in May and early June (see “Is it déjà vu or something new“) seems to have finally arrived:

“We’re now stuck with the toughest question in stock market investing/trading – when should you sell? Accepting the proposition of a 10% market correction to around 800-810, what should we do with stocks we now own?…..More importantly, the question you should ask yourself is whether there are strong, compelling reasons to not sell a stock……

As a general rule, I would say that market direction and momentum rules; if the market is starting to trend down, you should sell nearly everything…. Because you think it’s a good company, pays a good dividend, you already own it and believe it will come back or because Cramer just mentioned it on his show are not good enough reasons to continue holding a stock……

I know this sounds extremely conservative, some might even call it pessimistic. But I’m actually quite optimistic. I, like many others, have been waiting on the sidelines and are anxious to jump in with both feet. There are reports of huge amounts in money market accounts waiting for just that opportunity.”

Those who claim to see an emerging right shoulder to a h-and-s top and those who see it in an inverted h-and-s bottom (see “Half-Full or Half-Empty Views: A Head and Shoulder Market Top?“) are both going to be right. It’ll be a long, trying summer fending off the shouts of the bears claiming vindication in their warnings back in April of a “suckers’ rally. Also, the naysayers will harkening back to the notion that the economy is following the 1930’s Depression-style market pattern.

What most gives me agita are claims that the end to the era of living off of asset price appreciation has arrived. No more counting on your house appreciation for retirement, no more for selling hand-me-downs and junk on eBay for exorbitant prices and …. here comes the bad news ….. no more 15-20% per year appreciation in your portfolio. Just look at the volatility in prices for individual stocks in the July-March period vs. the volatility for those same stocks since March. The left shoulder of the inverted head-and-shoulders last November might have been 25% (from 980 to 750) but I’ll bet that the right shoulder will be between 10-15% due merely because of less volatility.

So what’s the strategy? Adding dividends to the total return calculation. While I, for one, would rather catch a stock’s 10-20% move up than collect $.25 in quarterly dividends off a $40 stock, having both dividend and price appreciation is like having your cake and eating it too (beating the birthday theme to death). So begins the quest for high dividends with price appreciation potential.

And what better place to begin the search than with REITs, natural gas pipelines and utilities. Many of these stocks have been beaten down in this Crash so their dividend yields are quite good; if the economy does show any signs of bottoming out, then the risk of dividend cuts at this late stage in the recession should also be reduced. Up the upside, many of the stocks are in the late stages forming excellent reversal patterns similar to the patterns of stocks included on the spreadsheet lists posted here earlier (like the stocks with bullish perfect moving average alignments). A spreadsheet list of 37 candidates (including dividend yield and volatility as indicated by Telechart) is available by clicking here. Examples include:

  • REITs
    • SUI (Sun Communities)
    • NLY (Annaly Cap Mortgage)
    • MFA (MFA Financial)
  • Pipelines
    • BWP (Broadwalk Pipeline)
    • MMLP (Martin Midstream Partners)
    • TPP (Teppco Partners)

Life might get less exciting but, just perhaps, we’ll wind up at the same bottom line.

October 1st, 2008

Toll Bros. and REITs; both hardly suffered a nick.

Some of you are probably saying, “Guru, what were you on when you wrote yesterday S&P 500 1040? Today’s gain was the largest since 2002!”

Ho-hum, I’m not impressed. Volume was low, the market is still technically weak (advance/decline ratio, new highs/new lows, relative strength, etc.). Today’s action represented nothing more than a bounce after getting trounced yesterday.

When you look around it seems the world has turned upside down. The $US was supposed to go into the toilet as a result of all liquidity pumped into the economy but instead it’s improved 12% against the Euro in less than two months. Oil was headed to $150 and soon $200, today it’s around $100. Gold and silver, the hard commodity hedges against a drop in the $US are down by up to 38%. The place to put your money are companies due to increasing softness in the economic was in stocks with large foreign exposure; the word today is that economies around the world are in worse shape than ours. What happened to the BRIC countries, their demand for steel, copper, foodstuffs, machinery and equipment, elevators and cranes …. poof, they’re gone.

No wonder it’s nearly impossible making a buck in this market. You think you have it figured out but by next week not only has the rules changed, the game has changed and it’s moved to another field.

Even so, we continue the process of searching out the early movers, the “leaders” after the market bottoms. Making money the beginning of the life cycle of a new bull market is as easy as shooting fish in a barrel. Nearly every stock has been decimated by the Bear Market, cash on the sidelines (like yours) is pouring into the market and prices are being marked up to more “normal” valuations.

I want to point you to two previous suggestions that continue to look valid and appealing (note charts are dated as of the previous post):

Both these suggestions have performed extremely well even while the market has declined 13-16%. Each time there is a bounce in the market as we saw today and may continue to see for the next few trading sessions, both these suggestions notch a little higher. And during the trouncing we had yesterday, they hardly suffered a nick. Keep your eye on these.

August 6th, 2008

REITs and Retailers…. Now?

As I scan through my charts, I get a very mixed and confusing impression. On the one hand, my Market Timing Indicator is definitely clearly signaling a flashing red signal or “all-cash”. The S&P 500 Index has to go up another 5.0% before it turns yellow and 9.7% before it clearly becomes a green bull market signal. There’s a clear and present danger of another major leg down from here. I, along with many of my technical brethren, have been expecting a touchdown at around 1150, or 10.5% below yesterday’s close.

On the other hand, I see a number of groups (and some specific stocks) bucking the trend by moving to new high ground and several other groups making nice patterns that, under favorable market conditions, could become bases for sustained and extended runs.

Not surprisingly, I concur with many other commentators who point to the healthcare products and equipment stocks and some of the software and technology stocks. But there are a couple of other groups that you haven’t heard much about (so I’m probably sticking my neck and reputation far out in offering them). The reason you haven’t heard much about these groups from other quarters is probably because they actually are quite counter-intuitive:

  • Apparel Retailers and Manufacturers: I first mentioned this group May 10 in which a list several. With the one big exception of JCG, the others in the list have performed beautifully since. What makes this group so surprising as a potential buy is the recent news (see Barry Ritholz’s theBigPicture blog) about all the retail locations that chains are now shuttering. But we shouldn’t argue with the collective intelligence of the market (maybe a smaller pie mean larger slices for the remaining) so I now add the following to the list:
    • URBN
    • WMT
    • CHRS
    • MW
    • TLB
    • JNY
  • REITS like nursing homes, hospitals, residential and retail (especially the larger players): I wrote about the healthcare retail REITs on April 26. What makes this so unusual is that real estate (especially development) is worse than flat on its back; it’s nearly comatose. Perhaps its the relatively high yield in REITs compared to low yield available elsewhere that draws buyers to the group. To that list, I now add some of the residential REITs like:
    • AIV
    • BRE
    • EQR
    • AVB
    • ESS
    • ACC
    • AEC
    • ELS
    • HME

Needless to say, I may be early so you should risk nothing more than a little toe. If I am right, there will be many opportunities and signals to get in down the road.