There’s an adage within Technical Analysis circles that suggests we should pay particular attention to long base breakouts. The saying goes something like this:
“The greater the base, the better the case”.
Right now, Canadian REIT’s are breaking out from a very long resistance point of around $18/share. In fact, the sector has been stuck in no-man’s land (sorry, I meant no-“peoplekinds land”). The $18 wall had been in place since 2013. That’s a long time.
So this year’s breakout through $18 is significant. Today’s chart illustrates that that break put the sector into intermediate termed overbought territory. RSI, MACD, and stochastics are overbought and rounding over. That’s to be expected. I expect that we’ll see a return of the index to $18. But I also suspect that $18 will become a new support level – and may indeed be a good entry spot.
Seasonality is strong for the sector in a choppy pattern over the summer—it’s kind of divided between a brief period of strength in the spring, followed by another jump from July to September. I’ll just piece it together and say that its seasonally ok to own REIT’s over the summer on average. Adding to that is the bullish moneyflow (top and bottom panes on chart).
This year, the chart suggests even greater reason to consider this sector as a defensive trade – and as an opportunistic one. If the play fails, you may earn a bit of dividend, and could choose to stop out if the sector ETF drops below $17. It doesn’t hurt to look at individual plays within the ETF for increased upside potential.
Keith on BNN Tuesday April 30th at 6:00pm
Keith appears regularly on BNN Bloomberg MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management. (Note: Times and Dates may be subject to change)
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