The ownership and operation of real estate assets has long been a lucrative segment of the financial markets. Like all sectors, the stock price and the underlying fundamentals of real estate assets took a drastic hit in the early days of the pandemic. The strong rebound throughout the summer and fall has made up for the earlier losses, and the momentum is showing few signs of reversing. In this article, we take a closer look at three charts of several key real estate investment trusts (REITs) and try to determine how active traders will be positioning themselves over the first few months of 2021.

Key Takeaways

  • Residential and commercial real estate stocks are trading near major levels of support, which will likely assist traders in determining the placement of buy and stop orders.
  • Bullish crossovers between long-term moving averages suggest that a long-term uptrend could just be getting started in the real estate sector.

SPDR Dow Jones REIT ETF (RWR)

Active traders interested in gaining exposure to niche market segments such as residential and commercial real estate often turn to exchange-traded products such as the SPDR Dow Jones REIT ETF (RWR). Fundamentally, the fund comprises 116 companies whose charters are the equity ownership of commercial and/or residential real estate and which operate under the REIT Act of 1960.

Looking at the chart below, you will notice that the fund's price has traded within a horizontal channel since recovering from the March lows. The recent uptick in buying interest has triggered a bullish crossover between the 50-day and 200-day moving averages, known as the golden cross, which is a common long-term buy signal used to mark the beginning of a major uptrend. From a risk-management perspective, followers of technical analysis will most likely maintain a bullish outlook on the fund until the price closes below $82.38 or $77.21, depending on risk tolerance and outlook.

Chart showing the share price performance of the SPDR Dow Jones REIT ETF (RWR)
StockCharts.com

Public Storage (PSA)

As one of the top holdings of the RWR ETF, Public Storage (PSA) will likely be on the watchlists of many active traders in the early part of 2021. As you will see in the chart below, the price of the stock has recently bounced off the support of the 200-day moving average and is approaching 52-week highs near $240.

The bounce from support of the trendlines and the recent crossover between the moving average convergence divergence (MACD) indicator and its signal line, shown by the blue circle, will likely be used as confirmation of a move higher. Stop-loss orders will most likely be placed below $203.33 in case of a sudden shift in market sentiment or company fundamentals.

Chart showing the share price performance of Public Storage, Inc. (PSA)
StockCharts.com

AvalonBay Communities, Inc. (AVB)

Another top holding of the RWR ETF that could capture the attention of traders in the first quarter of the new year is AvalonBay Communities, Inc. (AVB). Looking at the chart below, you can see that the share price has traded below the resistance of the 200-day moving average since the breakout in November.

The surge in momentum has also triggered a bullish crossover between the long-term moving averages, which suggests that the stock is in the early stages of a major uptrend. Traders will likely use the recent retracement toward the support levels as a buying opportunity and expect a bounce higher over the coming weeks and months.

Chart showing the share price performance of AvalonBay Communities, Inc. (AVB)
StockCharts.com

Since REITs buy real estate, you may see higher levels of debt than for other types of companies. Be sure to compare a REIT's debt level to industry averages or debt ratios for competitors.

The Bottom Line

Nearby levels of support and resistance are putting companies in the residential and commercial real estate sector onto the radars of many active traders. Lucrative risk/reward scenarios, as described above, suggest that this group of companies could be in focus for many traders over the first few months of 2021.

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