Charts Suggest Real Estate Sector Could Head Higher

The panic selling across the financial markets in recent weeks has sent the prices of many broad sector-based exchange-traded-funds (ETFs) toward long-term support levels. While the sharp declines in asset prices may make it feel like major long-term trends are in jeopardy, taking a longer-term view provides a perspective that could prevent active traders from selling too early.

Real Estate Select Sector SPDR Fund (XLRE)

For those who aren't aware, the Real Estate Select Sector SPDR Fund (XLRE) is one of the most popular ETFs used by active traders for gaining exposure to real estate management and development companies as well as real estate investment trusts (REITS). Taking a look at the 10-year weekly chart below, you can see that the recent sell-off briefly sent the price below the combined long-term support of the ascending trendline and the 200-week moving average.

During times of market panic, it is common to see overreactions as investors look to free up capital. The recent rise above the mentioned technical levels suggests that the price may have been oversold, and the long-term uptrend could still hold depending on what happens over the next couple of weeks. From a risk management perspective, long-term active traders will most likely hold a bullish outlook on this sector until the price notches several consecutive closes below the aforementioned support levels.

Chart showing the share price performance of the Real Estate Select Sector SPDR Fund (XLRE)

American Tower Corporation (AMT)

With a weighting of 14.96%, American Tower Corporation (AMT) represents the top holding of the XLRE ETF. Taking a look at the weekly chart below, you can see that the price of the company's stock has been trading within a well-established channel pattern since the start of 2016.

The multi-year uptrend is clearly in the control of the bulls, and the close in the middle of the channel suggests that the uptrend is still very much intact. Based on the chart pattern below, we'd expect followers of technical analysis to remain bullish on American Tower shares until the price closes below the lower trendline or the 200-week moving average, depending on risk tolerance.

Chart showing the share price performance of American Tower Corporation (AMT)

ProLogis, Inc. (PLD)

Another top holding of the XLRE ETF that is capturing the attention of positional traders is ProLogis, Inc. (PLD). As you can see from the weekly chart below, ProLogis shares have also been trading within a well-established uptrend.

This chart is of specific interest to traders because of how the price reacted to the sell-off toward the long-term support near $63. The strong bounce off of the combined support of the dotted trendline and the weekly moving average suggests that the long-term uptrend is stronger than many anticipate and that prices could be poised to continue higher over the weeks or months to come.

Chart showing the share price performance of ProLogis, Inc. (PLD)

The Bottom Line

While many sectors around the globe have broken below long-term support levels, one of the sectors in the United States that could be poised to hold up is real estate. Long-term channel patterns that are on display across the sector on weekly charts, such as those discussed above, are likely to remain on the radar of positional traders for quite some time. Based on these long-term channel patterns, real estate could be one of the few sectors poised to move higher over the weeks ahead. 

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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