The REIT sector has confounded many market participants as it continues to perform despite generally negative sentiment. Interestingly, the strength has not been limited to the larger names in this space like Simon Property Group, Inc. (NYSE:SPG) or Public Storage (NYSE:PSA). Many smaller names have also performed well and managed to avoid too much damage with some of the recent market weakness. While that market weakness may continue, many stocks in this group are already well into a consolidation and possibly getting ready to emerge from their bases. This could play out well if the markets defy the odds and continue to press higher.
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Corrections Corporation of America (NYSE:CXW), for instance, has been consolidating since October of 2010. It has been forming a descending triangle base as it consolidates and its volatility has been steadily decreasing. Its trading volume has also been tapering off which is another sign of healthy consolidation. Traders need to watch the $24 level for support and I wouldn't rule out one more shakeout near or just under this level. If CXW can clear approximately near the $26 level, it could lead to a breakout and continuation of the uptrend.
Inland Real Estate Corporation (NYSE:IRC) has also been consolidating since October 2010. However, IRC is actually already attempting a breakout which is impressive. IRC had been finding resistance near $9.20 but was able to finally clear it on Tuesday. This area should now become a support level and would be the level to watch for traders in the near future. (For more, see The Anatomy Of Trading Breakouts.)
Alexandria Real Estate Equities (NYSE:ARE) is another stock in the REIT sector that has already started to emerge from its base. In ARE's case, it had been in a consolidation for a much longer time. In fact, ARE has been trading sideways since April (not shown). ARE is finally clearing the important $75 level and could be ready to emerge from this base. Traders should watch this level as there may be some sideways trading near this area to confirm support.
Brookfield Properties Corporation (NYSE:BPO) is another REIT to watch. It has been narrowing in range after a volatile pullback off its November highs. It held $16 as support in December and has been holding steady near $18 for about a month. Traders should watch this level as a move above $18 could lead to a breakout. A break below $17 would likely lead to a retest of the $16 level. (For more, see How To Assess A REIT.)
The Bottom Line
There are times in the markets where it almost doesn't matter what stocks you trade because they all act in unison. However, the later in a rally it gets, the more selective traders must be. Many momentum stocks have been getting crushed recently, which is the markets way of telling us that they are priced to perfection. Traders are better served looking for a group into which this money can rotate. The REIT group has been consolidating for several weeks and could be a possible target for this money. (For more, see 4 REIT ETFs For 2011.)
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.