Weekly Update: Smart Money is Betting on Real Estate
Good evening, and welcome to this week’s edition of Stealth Trades!
The divergence could not be any clearer.
Money is pouring into real estate stocks while tech suffers a wave of profit-taking.
The chart above shows the 1-month performance of the real estate sector (measured by IYR) against the Nasdaq Composite index.
The picture is even more obvious on our TA Industry Strength indicator. It compares the relative performance of 40 different market sectors over a given time period.
Half of the leaderboard is tied to real estate. Home builders, utilities, insurance companies and banks (especially those heavy in the mortgage business) benefit directly from housing booms.
All have demonstrated above-average performance in the recent market decline.
One of the major forces behind this shift is a decline in interest rates. After four years of record rate hikes, the market is finally pricing in cuts from the Fed.
The 10-year bond yield fell 100 basis points from May to August.
30-year mortgage rates, which started the year at around 7.7%, are at 6.5% today. It’s not a huge drop, but many buyers who have been on the sidelines watching rates soar for the last couple years are taking what they can get.
Last week saw the largest increase in home refinance applications in over a year. New home applications are more of a lagging indicator but expect to see those metrics shoot up over the next month or two as well.
Right now, the market is in limbo. We saw a nice recovery this week following the weekend selloff, but the market needs to firm up before giving the all clear.
I want to see stocks forming tight, shallowing bases and then following through to new highs. Until that time, it would be wise to restrict new purchases to the absolute strongest area of the market, which, right now, is the real estate sector.
Here are a couple setups I am watching:
Weyerhaeuser Company (WY)
WY is a lumber company. It not only owns significant timberland and real estate, but the company also manufactures and distributes forest products.
This is more of a cup with handle pattern than a traditional shallowing base, but there is clear resistance near the $32 level.
Public Storage (PSA)
PSA is a real estate investment trust which owns and operates self-storage facilities nationwide.
In the weekly chart above, you can see a huge base that has formed over almost two years. $315 has been kryptonite for buyers since mid-2023, and every attempt to breach has failed.
A breakout above this level is where things could get interesting.
Simon Property Group (SPG)
SPG is another REIT, but instead of storage facilities it owns and develops commercial shopping centers. The company owns a portfolio of outlet malls, entertainment venues, dining strips and other mixed-use facilities.
This chart is the cleanest of the three. After a strong rally at the end of last year, the stock has consolidated around the $145 – $155 range for most of 2024.
If SPG breaks out from here on above-average volume, it could be a great buy.
Best wishes for your trading,
