The Deep Dive
The subject of this week’s Deep Dive is real estate, a sector we last covered in this publication exactly 6 months ago.
Now, you might ask, why devote so much space to a sector that totals less than 3% of the S&P 500?
That’s fair, but remember, real estate got to be such a small sector by being the worst.
Not only is the sector the worst-performing sector over the past year, but it is also the only sector negative over the trailing 3-years. However, in my bottom-up work, some clear bottoming patterns have caught my eye and if the worst sector is improving, that could be an important signal for the market.*
Today’s report will review:
Current technicals from a top-down perspective
Leaders within real estate
Stock putting in bottoming patterns
Lagging stocks with more to prove
Let’s dive in!
*The January 10 edition of The Deep Dive focused on communication services for the same reason and helped to sniff out a monster turn in the sector.
XLRE: Real Estate Select Sector SPDR Fund
Real estate is actually lower since the last report but is holding an uptrend line that stretches back to the October lows. It looks as though the summer 2020 lows are going to hold as support for real estate, but the 200-DMA is still acting as resistance up above.
XLRE vs. SPY
On a relative basis, there is very little to indicate real estate is ready to outperform. The sector hit an ALL-TIME relative low vs. the S&P 500 as recently as May 26 and is still below a downward-sloping 50-DMA. There is a bullish momentum divergence, and today’s report will show some positives as the individual stock level. But without some signs of upward progress in this chart, it is too early to get excited about the sector. Remain underweight.
Breadth is still weaker than the market
Just 43% of real estate stocks are above their 200-day exponential moving average. This is weaker than the broad index’s reading (53%) and the 4th worst reading of any sector, with only utilities, healthcare, and materials showing weaker readings. It doesn’t mean the sector can’t go up but does mean the opportunities for stock pickers are more limited.
Keep reading with a 7-day free trial
Subscribe to Brown Technical Insights to keep reading this post and get 7 days of free access to the full post archives.