Real Estate is weakening

December 30, 20196 Comments

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.

 

Conclusion

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

 

6 Comments

  • HAPPY NEW YEAR KEITH

    i hope that you had a wonderful Christmas with your family and friends.

    I was reading your tweet about the Real Estate market, and this rang close to home for me.

    A couple of years ago we were thinking of moving and had hired a Realtor to help us out.
    Well, we never made the move, but kept in contact with the Realtor.

    A few weeks ago, we received a nice email from her telling us that she is leaving the business after 25 years, This is due to the fact that she feels the business is slipping back into its old ways, as they were in the 70’s and 80’s. Where the buyer is not being properly represented by the Realtor. This is because of new changes in the process of handling a property sale.

    I have not dug very deep into this subject, but it makes me wonder what has changed (we live in BC, if that makes any difference) so much that someone with 25 years invested would leave the business?

    HAPPY NEW YEAR

    Neil

    Reply
    • Happy New Year to you too Neil. I too don’t know much about the business (realty) so hard to comment on her decision–but the other factor is the length of time she’s been doing it. Realty is a demanding career. Perhaps she’s just plain old tired, and needed an excuse to pack it in? Just thinking out loud!
      Anyhow–here’s to a good stock trading environment in 2020 (which, BTW, does NOT have to be straight up to be good!)

      Reply
  • Enjoyed your news years bnn appearance. I wish they would put up longer termed charts. For example that EMQQ st0ck looks to have resistance right at these levels from late 2017 and really 2018.

    Reply
    • Agree–plus I have whined and complained to them about their non-logarithmic charts–which distort the support/resistance points. I agree with your observation–so we pay it and see if it breaks, then sell if it doesn’t.

      Reply
  • Wow you timed the EMQQ perfect. Big move in that today on the Chinese stimulus announcement

    Reply
    • After seeing the new Star Wars, I decided to learn to use the Force to determine entry points–“it” told me to buy EMQQ. No more technical analysis. May the Force be with us!
      Ha! Happy New Year Dave

      Reply

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