The Deep Dive

Real Estate

Good morning,

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

• and more!

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.

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Top-down technicals

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.

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Leaders