While transaction volumes and several fundamental factors within real estate are pointing to continued moves higher, concerning chart patterns on some key assets within the sector are giving some active traders reason to tread carefully. Based on key fundamentals such as rising rental costs, major markets are in continued need of a robust workforce with rising wages to support growth.
In a December 2017 report, experts at Colliers International, a global real estate services company with 15,000 professionals operating in 68 countries, raised a red flag by suggesting that the sector may have peaked for the cycle. Due to the cyclical nature of this sector and the bearish chart patterns, which we will analyze in more detail below, active traders are likely to remain on the sidelines and wait for bullish signals to return. (For more, see: Real Estate Investing: A Guide.)
iShares U.S. Real Estate ETF
From a timing perspective, the Colliers report in December could not have come at a more interesting moment. Taking a look at the chart of the iShares U.S. Real Estate ETF, you can see that the release of the report in December corresponded with a drop below a key ascending trendline, which was also a clear level of support on each attempted pullback throughout 2017. The subsequent move below the 200-day moving average and failed attempt to regain its upward momentum confirmed to technical traders that the trend was in the process of reversing.
You’ll notice that the throwback toward the newfound resistance of the 200-day moving average offered very strategic entry points for active traders, which was then confirmed again by the bearish crossover between the 50-day and 200-day moving average. Followers of technical analysis will tell you that the bearish crossover between the two long-term averages is known as the death cross and is usually a reliable signal that is used to mark the beginning of a downtrend. At this stage, traders will likely maintain a bearish outlook on the sector and watch for a rise toward the 50-day moving average, entering orders as close to the resistance level as possible to maximize the risk/reward. (For more on this topic, check out: Will Higher Interest Rates Crush Real Estate?)
Bearish chart patterns on key real estate assets are confirming the Colliers International report that the peak for this cycle could be in place. …read more
Category: IYR, PLD, EQIX