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With the sector breaking down below the pre-COVID peak and declining 50-day moving averages, the bearish price action continues to play out. Despite market-wide downside pressure, interest rates have become a headwind for this group to post relative gains as market volatility remains elevated. Breadth in the space has become washed out to the downside across timeframes and could be pointing to further downside in the space, leaving fully invested market participants to seek out the pockets that are performing less bad than the sector.

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Real Estate

The last time we looked at the group, we noted that Real Estate has a risk of the pre-COVID peak. Yesterday, the bears reiterated their dominance of the trend by gapping the index through that level. The group remains below the 50 and 200-day moving averages. It would not be a surprise to see the 200 – 220 level tested.

Relative to the S&P 500

On a relative basis, the group is neutral. There is a slight edge for the bears as the ratio trades below the resistance and the 50-day moving average.

Industry Trends

Real Estate Investment Trusts are the clear driver of sector performance as the charts are nearly identical. The group has gapped through support at the pre-COVID highs and trades below the 50 and 200-day moving averages. It is hard to make a bullish case based on absolute price trends.  

Relative to the broader sector, the group is holding its ground, hovering around the 50-day moving average as it looks for an opportunity to break above resistance.

The trend for Real Estate Management and Development remains bearish. After breaking below the 280 level, the index has set its sights on the pre-COVID highs near 220. The group is below the declining 50 and 200-day moving averages, keeping the bears solidly in control.

Relative to the Real Estate sector, Management and Development maintains a bearish position. The ratio is below resistance and the declining 50-day moving average despite a recent rebound attempt. 

Real Estate, Rates, and Relative Strength

While Real Estate is often seen as a defensive sector, it needs to be viewed within the context of the interest rate environment. We can see that there tends to be an inverse relationship between the group’s relative performance and the path of the 10-Year Yield. Note that the 10-Year is on the verge of a breakout.

Breadth

After yesterday’s strong selloff in the sector (and market-wide), the percentage of Real Estate components trading above their 20, 50, and 200-day moving averages fell to zero. There were 24 instances since 2002 where the percentage of Real Estate components trading above their 20, 50, and 200-day moving averages all equaled zero for a median loss in the sector of -18.89% and was lower 69.57% of the time over the following quarter. While washed-out breadth across timeframes can often be a positive counter-trend development, unfortunately for Real Estate, this has not historically been the case.

This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.

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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.