Tickers in this Article: IYR, FRT, SPG, SKT
The REIT sector is an important group to track due to its direct correlation with two critical economic themes being monitored by investors. First, the REIT group is directly tied to the real estate market, which has been under immense pressure throughout the past few years. The group is also directly tied to consumer spending through the various shopping centers and malls owned by individual REIT companies. This group was originally expected to follow the finance stocks lower during the financial crisis, and while they certainly suffered, it has been a little surprising how well they have held up. (For a quick refresher, check out What Are REITS?)

IN PICTURES: 5 Simple Ways To Invest In Real Estate

Back in July, we took a look at the REIT sector and commented on how it was approaching a critical juncture. The group had been in a consolidation and was in the process of testing the upper boundaries of its base. If it had failed there, it could have meant that the group would undergo an important retest of support near the bottom of the base. However, the group managed to rally through some important resistance levels, and is now shaping up for a possible move higher.

This action is clearly shown in the iShares Dow Jones US Real Estate ETF (NYSE:IYR), which tracks the sector. Notice how IYR recently bounced from the bottom of its current consolidation near $46, and then proceeded to test a declining trendline near $50. This trendline was marking recent rally highs and IYR was able to push through this level in late July. Beyond that, IYR was able to also set a higher high by rallying past its June high. This is important, as it shows that buyers were willing to pay higher prices despite the threat of a prolonged market correction. After last week's pullback, IYR has begun to head higher again, introducing the potential for a higher low near the $50 level. This will be the level to watch in the near term, as a drop below this level may imply a trip back down to the bottom of the base.

Source: StockCharts.com

Federal Realty Investment Trust (NYSE:FRT) is an individual stock in this sector that is following a very similar pattern to its parent ETF. The one clear difference is that FRT was able to power to new highs above the entire base. This is a bullish development and is showing great relative strength to the general markets. FRT pulled back to test the breakout area near $77.50 before turning back higher. This will be the level to watch for a failed breakout in the near term.

Source: StockCharts.com

Simon Property Group (NYSE:SPG) is another individual stock in this sector that is acting well. SPG also powered to new highs above its base in August despite repeated concerns about a prolonged economic slowdown. SPG was following a clear trading range for the past few months and has broken clear of this base. The key level to watch moving forward will be the lows set near $88 after the recent pullback.

Source: StockCharts.com

Tanger Factory Outlet Centers (NYSE:SKT) is another REIT stock that has managed to break out of its base despite the threat that the general markets will head lower. SKT has been building a base since early spring, and began to take some positive steps in July as it cleared a descending trendline that had marked the top of its trading range. It set another milestone in July when it cleared its base and is now turning back higher after retesting the breakout level. This pullback low near $43.50 will be the level to watch in the near future.

Source: StockCharts.com

Bottom Line
While the general REIT ETF is still below its yearly highs, it's promising for the group that many individual stocks are starting to move higher. These stocks were under pressure as recently as two months ago, and buyers have stepped in to support them. This group remains a key indicator of health in the general markets. It will be extremely difficult for the markets to head back lower if this space is setting new highs. The recent breakouts should be closely monitored and if these stocks continue higher, the general markets are likely to follow suit.

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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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