The real estate investment trust (REIT) giant Realty Income Corporation (O) has been consolidating sideways for months now. However, it's setting up for a quick double-digit breakout in the coming weeks.
Realty Income owns over 6,000 real estate properties with a sole focus of returning income to shareholders. It has paid out a monthly dividend for 51 years and increased dividends more than 100 times since going public in 1994.
We've seen investors' appetite fluctuate for income-based REITs like this. Since traditional yields are still extremely low, REITs are more attractive for income seekers, but investors still can't ignore the price movements.
Right now, prices are setting up for a breakout that needs to be on investors' radar. The consolidation since July has created an ascending triangle pattern, with the red resistance line and green support line converging to a breakout point.
The ascending triangle pattern is one of my favorite ones to track because it tells us so much. We know the key breakout points to watch: the trendlines on the chart. Once we get a breakout above or below one of those trendlines, we then get a price target by taking the height of the pattern, $10 in this case, and adding it to the breakout.
So if shares break below the $56 support, we get a quick price target of $46. And on the upside, the breakout could come around $61 or so, giving us a target price of $71 per share in quick fashion, which would equate to a 16% rally.
The only problem is that we don't know which way to expect the breakout to go. For that, we can turn to the handy Relative Rotation Graph (RRG). I've shaded the prices on the chart to reflect where Realty Income is based on the RRG, relative to the S&P 500.
The RRG combines the relative strength of the stock to the S&P 500 with momentum to create a unique view of the stock. It shows that stocks rotate from leading the overall market, weakening as the momentum slows, and eventually lagging the market, before improving as momentum picks back up to come back to lead the market once again. Stocks tend to rotate in that specific order: leading, weakening, lagging, and improving.
Right now, Realty Income is in the lagging section of the chart and is expected to move toward improving. As it does, that should help push the shares back up near the red resistance level and could be enough for a breakout to the upside.
The Bottom Line
Realty Income has been a favorite stock among those looking for income. But after the pandemic-related crash, shares have consolidated for months into an ascending triangle pattern. Shares are nearing a breakout point in the coming weeks, which could send the stock on a quick double-digit ride. Based on the RRG, I'm looking for Realty Income to break out to the upside and hit a price target of $71 in the coming months.