We've written about the REIT sector on several occasions over the past two years as they defied conventional wisdom and performed quite well as a group. Late this summer, the group came under pressure along with the general markets, and it looked like the time for a deep correction had finally arrived. While the decline in August was certainly steep, the group appears to have staved off a longer correction.
In looking at the group via the iShares Dow Jones U.S. Real Estate (NYSE:IYR) ETF, it is clear that the August decline was actually pretty strong. IYR dropped from just over $62 per share to under $50 in just a few sessions. After chopping around for a few weeks, IYR began to decline in October, and it actually breached new lows. However, IYR quickly found support and roared back to life. IYR has yet to recover all of its declines, but some individual REITs are hinting that a rebound may be just around the corner.
Mall operator, Simon Property Group, Inc. (NYSE:SPG) has been one of the leaders in this space over the past two years. SPG started to crack in August along with IRY and the markets, but notice how it showed relative strength in October. While IYR was testing new lows, SPG actually set a higher low. When it rebounded, it had enough momentum to carry it to new highs. SPG is now at all-time highs, despite the high unemployment rate and soft economy. The $123 area should act as support on any near-term weakness in SPG. (For more see, The REIT Way.)
Extra Space Storage Inc (NYSE:EXR) is another REIT that managed to rebound to new all-time highs recently. EXR followed a similar pattern to SPG in dropping sharply in August, but recovering fairly quickly. It differed in that EXR did drop to new lows in October, but quickly found support again. Both breaches of the $18.00 area were met with clear signs of support. With a breakdown averted, the ball is clearly back in the bulls' court.
Public Storage (NYSE:PSA) also surprisingly surged to all-time highs as well recently. It had been steadily rising earlier this year, but started to experience some volatility in the summer along with the markets. While it dropped from its July highs along with everything else, it really held on to its base for the most part. Both spikes down towards the $105 level were quickly scooped up by market participants locking in that area as support. PSA appears to be headed back for a retest of the $123 area where it should find support.
The Bottom Line
It is interesting to find three REITs back at all-time highs so quickly. While IYR remains in much the same pattern as the market indexes, these stocks may be clueing us in to a broader move in the sector. Traders should keep an eye on the leaders mentioned, as a failure in these names would send a clear signal that the group needs more time. However, if these stocks can maintain their breakouts, it could lead to the rest of the group playing catch up. (For more, see 4 Hot Real Estate REIT ETFs.)
Charts courtesy of stockcharts.com
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.