eResearch | Keith Richards of ValueTrend suggests that the Canadian real estate sector may have reached a peak and is now on the verge of rolling over. This has implications for income-seeking investors.
Lower Highs and Lower Lows
The following chart, courtesy of Thomson Reuters, shows that, since September, the S&P/TSX Capped Real Estate Index has stalled. Experiencing lower highs and lower lows, it is now testing its critical 200-day Moving Average. This Index is comprised of both traditional real estate companies but, predominately, real estate investment trusts.
ValueTrend Sell Guideline
ValueTrend adheres to the following trading axiom: A ValueTrend sell rule is to sell upon a lower low and lower high AND the break of the 200-day SMA by 3 or more days.
Analyzing the Recent Weakness
The real estate sector is an investor favourite especially because of the high yields that the Real Estate Investment Trusts (REITs) throw off. But, are the REITs the sole cause of the index weakness? The following chart, the iShares S&P/TSX Capped REIT Index ETF (TSX:XRE), looks very similar to the Composite Index above. Not surprising, since the REITs are, by far, the largest component of the Index.
ValueTrend Conclusion
Mr. Richards strongly believes that investors seeking income through the real estate sector should heed the warning signs. If the REITs break below that critical 200-day Moving Average, then Mr. Richards states that he would “be concerned if the market followed through with a break of that moving average. That might be the final nail in the coffin.”
eResearch Comment
The following chart, courtesy of BigCharts.com, shows clearly how close the Index is to its 200-day MA line. There is a bit of leeway currently, so lots of time to establish an investment sell-strategy for this sector, if appropriate.
ValueTrend Article
You can read the entire ValueTrend article here: Real Estate Is Weakening
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