The real estate sector is often looked to by active traders because of the cyclical nature of the underlying fundamentals and long-term trends that result. As you'll find below, the bulls have responded reliably after each attempted pullback over the past couple of years, and recent price action from across the space is now suggesting that prices are gearing up for a more significant move higher.
Vanguard Real Estate ETF (VNQ)
With 188 holdings and total net assets of nearly $15 billion, the Vanguard Real Estate ETF (VNQ) is often regarded as the bellwether for the entire sector. Identified trends on the chart of VNQ are often a clear sign of the macro-level forces facing the broader segment.
As you can see below, the strong move higher so far in 2019 has sent the price of the fund beyond the resistance of an influential multi-year trendline. The breakout is a clear indication that the bulls are in control of the momentum, and many traders will likely look at the glancing long-term moving averages as confirmation that the long-term uptrend is still clearly intact. From a risk management perspective, stop-loss orders will most likely be placed below the trendline in case of a sudden shift in fundamentals or market sentiment.
Public Storage, Inc. (PSA)
One of the most niche segments of the real estate sector that is often overlooked is storage. Factors such as strong consumer demand and consistent levels of recurring revenue suggest that companies such as Public Storage, Inc. (PSA) are well positioned for the long term.
Taking a look at the chart, you can see that the price was trading within a clearly defined triangle pattern. The converging trendlines are closely watched by followers of technical analysis, and the recent breakout shows that the bulls are in control of the momentum and that the price is likely headed toward levels around $234, which is equal to the entry price plus the height of the pattern.
AvalonBay Communities, Inc. (AVB)
Another real estate stock that is a favorite of hedge fund managers and active traders alike is AvalonBay Communities, Inc. (AVB). The bounce off the support of the 200-day moving average, as shown on the chart, is common behavior near long-term support levels and is an obvious sign that the bulls are in control of the direction. The close above the 2018 high near $190 earlier this year suggests that there are no remaining resistance levels of concern that could prevent a significant move higher.
The Bottom Line
Price action across the real estate sector – as shown by charts like that of the Vanguard Real Estate ETF and several of its top holdings – suggests that the bulls are in clear control and that there is significant upside potential remaining. Active traders will likely keep a close eye on the nearby trendlines for determining the placement of their buy and stop orders.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.