Canadian real estate appears to be on the verge of rolling over. I couldn’t get a TSX Real Estate Composite chart from stockcharts.com, so I have copy/pasted a chart from my Thomson Reuters system below. Note the lower highs and lows on the weekly chat, and the current flirtation with the 200 day (40 week) SMA. A ValueTrend sell rule is to sell upon a lower low and high AND the break of the 200 day SMA by 3 or more days.
So far, its only the SMA that would keep us in the trade. Having said that, we have been out of real estate since October. But many investors continue to hold the sector for its lucrative dividends. Should they continue to hold? Well, the problem with the real estate index is that it is largely comprised of income trusts. Sure, there are a few traditional real estate companies like Brookfield and First Capital, but its overwhelmingly driven by the REIT’s. So we want to look at the REIT’s a little more closely to see if that’s the problem. The iShares REIT chart (XRE) is below. Note that its similar to the TSX Real Estate Composite.
The only other thing to look at is the traditional real estate stocks for comparison to the REITS. I wont post charts of all of them. But lets pick a couple of the bigger weightings, starting with Brookfield Real Estate (BRE-T). Its been in a giant triangle, and has yet to break out. The formation is materially different than the REIT’s. That being said, its not particularly bullish (unless it breaks to the upside of the triangle). We shall see.
The second largest traditional real estate holding is First Service (FSV-T). It is breaking down -per the chart below.Longer termed picture remains ok, given the larger uptrend of peaks and troughs. But the neartermed picture looks like more pain to come. The 200 day SMA was taken out in November and its been floundering since.
Even income seeking investors should heed the trend. REIT’s in particular tend to play a part in most of these investors portfolios. Be wary of the recent breakdown in real estate stocks. While the REIT’s are not yet completely broken (aka they are still holding above the 200 day SMA) – the recent movements have been bearish. I’d be concerned if the market followed through with a break of that moving average. That might be the final nail in the coffin.
Keith on BNN Tuesday Dec 31st at 5:00pm