Real estate investments have been one of the strongest performing segments of the financial markets over the past couple of years. For those who follow the markets, you'll know that extremely strong uptrends seem to be the norm and that there is a group of traders starting to voice concern about a pullback. Interestingly, the chart patterns are suggesting that prices could be poised to continue the upward momentum and that selling now could prove to be premature. In this article, we'll dig into a few charts from across the real estate sector and try to determine how followers of technical analysis will be looking to position themselves over the weeks or months ahead.
Real Estate Select Sector SPDR Fund (XLRE)
Generally speaking, traders who are looking to gain exposure to a niche market segment often turn to exchange-traded products such as the Real Estate Select Sector SPDR (XLRE). For holdings related to real estate management and development along with related real estate investment trusts (REITS), there are few funds more popular than XLRE.
Taking a look at the chart below, you'll notice that the price is trading within an established uptrend and that it has found support nearing the rising 50-day moving average over the past couple of months. The rising period of consolidation has formed an interesting triangle pattern that will likely capture the attention of swing traders. Buy orders will be placed above the psychological $37 mark, and traders will most likely look to protect against downside risk by placing stop-loss orders below the lower trendline. A breakout would likely trigger a move toward target prices near $40, which is equal to the height of the pattern plus the entry price.
Crown Castle International Corp. (CCI)
One of the top holdings of the XLRE fund that will likely move onto the watch lists of active traders is Crown Castle International Corp. (CCI). Taking a look at the chart, you'll find that an ascending triangle pattern has formed over the past several months and that the bulls were able to send the price above the resistance earlier this week. The breakout and slight pullback is currently offering traders with an interesting risk-to-reward ratio and could be the catalyst for a continued move higher. Stop-loss orders will most likely be placed below the swing low near $126.34 or the lower trendline, depending on risk tolerance.
Welltower Inc. (WELL)
One of the most defined uptrends found anywhere in the public markets belongs to Welltower Inc. (WELL). As you can see below, the dotted trendline and the support of the 200-day moving average have consistently provided traders with strategic levels for placing buy and stop orders. The recent break beyond the previous high is a clear technical indication that the bulls are in control of the momentum, and the close near $80 is creating an interesting buying opportunity on the basis of risk/reward.
The Bottom Line
Real estate investments tend to be sensitive to fluctuations in the economy. However, based on the patterns discussed above, it seems as though this segment has been able to counter the rising levels of volatility and continue its primary uptrend. Active traders will most likely look to place buy orders as close to the support levels as possible and set tight stop-losses should the sentiment across the sector start to change.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.