Technical Traders Shift Focus to Real Estate

The real estate sector is regarded as a staple for any serious income investor, and it also happens to be a favorite of active traders because of its relatively predictable cyclical nature. In this article, we take a look at several charts that traders use to track the real estate sector and see how they will likely look to position themselves over the weeks or months to come. (For a quick refresher on this topic, check out: Exploring Real Estate Investments.)

Retail traders who are interested in tracking the performance of a specific sector often turn to exchange-traded products such as the iShares U.S. Real Estate ETF. Taking a look at the chart below, you can see that the price moved sharply lower after breaking below the combined support of the 200-day moving average and the left-most ascending trendline. The decline triggered a bearish crossover between the 50-day and 200-day moving average, which is a common technical sell signal. After a bit of a reprieve in the selling pressure, traders have recently managed to push the price above the resistance, and the strength of the move has now triggered a bullish crossover between the long-term moving averages. The recent crossover marks the technical beginning of a long-term uptrend, and many traders will likely place their stop-loss orders below $77.96 or $76.85, depending on risk tolerance, to protect against a sudden shift in the underlying fundamentals. (For further reading, check out: Active Traders Turn Bullish on Real Estate.)

American Tower, which is the top holding of the IYR ETF, will likely be the focus of traders over the coming days. Taking a look at the chart, you can see that the price has recently moved beyond the resistance of a defined triangle pattern, and the proximity of long-term support levels such as the 200-day moving average put the bias clearly in favor of the bulls. A few more days of gains will undoubtedly trigger a bullish crossover between the 50-day and 200-day moving average, known as the golden cross, which will likely be a catalyst for a move back toward the 2017 high of $152.85. (For further reading, see: A Technical Look at the Real Estate Sector.)

Another top holding of the IYR ETF is Simon Property Group, which has also benefited from a renewed interest in real estate investments. As you can see below, the march higher that has taken place since late April has sparked a move beyond key levels of resistance and has recently triggered a golden crossover like those mentioned above. The chart is a clear indicator that the momentum is in the favor of the bulls, and most traders will likely place stop-loss orders below the dotted trendline or the 50-day moving average to protect any sudden shifts in sentiment and to maximize the risk-to-reward ratio. (For related reading, see: Real Estate Investing: A Guide.)

Real estate is a sector that has started to outperform others within the market over the past several weeks, and the move is catching the attention of many active traders. Based on the nearby support and recent buy signals shown on the charts above, it seems that now could be a good time to allocate some capital toward investments in the real estate market. (For more, see: 4 Key Factors That Drive the Real Estate Market.)

Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.