Leading into the New Year, Real Estate (IYR) shares outperformed, as yields backed off from their recent 52 week highs. Bonds continue to rise as a result.
The S&P500 and Nasdaq saw its share of year end selling. The Generals should tell us if last week was a fluke or whether they will lead in a continuation pattern lower to start the year.
We wrote about recent price action in a New Years Eve Post, that you can read here, Bad Breadth with the Generals Failing to Make New Highs.
We have to assume a neutral stance at this time, so as not to cast a bias over our thinking. Few pockets of strength remained untouched last week, with the exception of IYR and some financial stocks.
If futures remain elevated, we might break above the top of this descending channel on the daily chart. Equally possible is a rejection in the same zone, if last week was more than “year end tax selling.” This is a major reason to pause and let price dictate our decisions, as we start the New Year.
Additionally, 224.25 through 224.54 (+/-) saw lots of block trading on Wednesday and Thursday. We are above this level in pre-market trading.
REITS and The Real Estate Sector
Several stocks that we have traded over the past year have shown increased interest of late, moving above their 9/20ema, with 200ma targets overhead.
PSA met earnings in its latest report; price action moved higher in the interim period. A Kirby looms overhead, with an initial target at the 232.19 (200ma). We appear to be building the right side of a cup pattern, therefore the left side completes Phase IV. The latter markdown period depletes the remaining supply, which leads to Phase I, the base. If prices do breakout here, that will be the start of Phase II, the markup period. RSI, MACD and volume suggests this is more likely than not. Stops should be set initially below the rising 9ema.
Four Corners Property Trust (FCPT) is breaking out of a broadening pattern, (+0.52) above the breakout zone, well within tolerance for an entry. Stop if prices dropped back into the pattern. As prices attack recent pivot highs, anticipate 21.66 might be reached short term. RSI is rising, along with a bullish MACD. We would like to see volume increase.
NXRT exhibits exceptional strength, as it breaks out of the cup and handle base. The thing to note is VBP resistance was over come, resulting in trading into a zone with little supply. Demand should push this candidate higher in the short term. The stock is trading post-EPS. Stops under the trailing 9ema.
Many candidates from this industry group look ripe for continuation, should buying pressure persist.
Watch List adds: AHH, HCN, GGP, HTA.
Finally, should prices break higher out of the descending patterns printed at the close of 2016, we would look to sectors and potential candidates that mirror the pullback, yet bounce hard today. In other words, look for strong stocks that pulled back to support levels. And, look for sector rotation back into those areas that were sold hard last week.
The sector rotation heat map at the top of this article, is more bearish than bullish, yet another reason to wait for confirmation. The choice is yours.
Happy New Year!
Vinny
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