Real estate investment trusts (REITs) make up a segment of the real estate sector that many long-term investors turn to for income and growth. Active traders often look to the charts of popular REITs because they often provide an insight into niche sub-sectors of real estate such as in-demand office space, data warehouses, storage, residential, or industrial mortgages. In this article, we'll take a look at a few REIT-specific charts that look poised for a move higher and try to determine how followers of technical analysis will be looking to position themselves over the weeks ahead.
First Trust S&P REIT Index Fund (FRI)
Active traders often turn to exchange-traded products such as the First Trust S&P REIT Index Fund (FRI) when trying to get a sense of where the broad segment is headed. Further analysis of top holdings will often go on to reveal what sub-sectors are in demand and poised to outperform.
As you can see from the chart below, a symmetrical triangle has been forming on the chart of FRI over the past several weeks. This consolidation pattern is commonly found after a sharp rally or selloff. Furthermore, a symmetrical triangle is usually looked to as a brief pause before the major move. Based on this pattern, traders will likely hold a bias to the upside and set their short-term target prices near the horizontal trendline. Should a move above the trendline occur over the next week, then it would likely be a catalyst for a further break higher. Traders will watch for confirmation from other technical indicators, which would likely trigger a surge in buying interest across all segments of U.S. REITs.
ProLogis, Inc. (PLD)
As one of the world leaders in real estate and supply-chain logistics, ProLogis, Inc. (PLD) represents the top holdings of the FRI fund. Taking a look at the chart below, you can see that the price has recently moved above the psychological $100 mark. Recent momentum has also triggered a bullish crossover between the 50-day and 200-day moving averages, which will likely be used by active traders to mark the beginning of a long-term uptrend.
A recent pullback toward the horizontal trendline will likely be noticed by active traders and looked at as a buying opportunity. From a risk/reward perspective, buy orders will most likely be placed as close to the trendline as possible. Stop-loss orders will most likely be set below the 200-day moving average ($89.93) in order to protect against a shift in underlying fundamentals or market sentiment.
Public Storage (PSA)
Another REIT and top holding of the FRI ETF that will likely capture the attention of traders is Public Storage (PSA). As you can see from the chart below, the price has recently broken above the combined resistance of a symmetrical triangle and its 200-day moving average.
Followers of technical analysis will most likely set their target prices near $265, which is equal to the entry price plus the height of the pattern. Stop-loss orders will most likely be placed below $200 in case of a sudden selloff or change in market fundamentals.
The Bottom Line
REITs are a relatively underfollowed segment for most active traders. However, based on the charts discussed above, it looks as though the group could just be in the early stages of a long-term move higher.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.