The income stock trap: dont get caught!

October 17, 20124 Comments

 

For this weeks sector focus, I thought it might be good to look at a popular income-paying sector. Income investing is my topic at the Toronto World Moneyshow on Thursday (3:45pm) at the Metro Convention Center. More info on that below.

Many seniors and income-orientated investors have been buying REIT’s (Real Estate Investment Trusts) for good reason over the past few years. The sector continues to hold a long termed uptrend that began in 2009 as seen by the green trendline  (iShares TSX Capped REIT ETF). The bigger trend hasn’t been broken, but a few danger signs may be appearing for the sector. This concerns me, knowing that many of the more vulnerable investors out there such as seniors and those who rely on their investments for income would be negatively affected by a reversal in fortune in REIT’s.

Three months of lower lows and lower highs – as noted on the chart by my short termed down sloping trendline – point to weakness in the group. The break of the 50 day MA is another sign of weakness. Comparative relative strength vs. the TSX (not shown) is relatively flat, indicating no leadership by the group.

As it stands, REIT’s continue to display adherence to the longer termed bullish trendline. Consider the group technically sound until this trendline, which stands at around $16.80 right now for the iShares ETF, is breached. The warning signs noted above (recent descending peaks, break of the 50 day MA) may be a heads-up for future downside.

By the way—I am on BNN tomorrow (Thursday) at 10:35am to interview with Frances Horodowski. I’ll be talking about gold, silver and the TSX.

 

Watch Keith live at the World MoneyShow in the comfort of your home or office!

The MoneyShow, where I will be appearing tomorrow – October 18th at 3:45pm at the Metro Toronto Convention Center – has launched a pretty cool feature this year. You can register ahead of time to watch the show on your computer.

4 Comments

  • Hi Keith:
    Your note on XRE was timely and I noted it is more or less holding trendline. Keith, what about the fundamental gurus who are pointing to low interest rates for sometime to come even in Canada. Would you say your comments apply to pipelines eg.IPL.UN as well. Gold – your previous comments on re-entry at 1720 – 1680??. It seems to have held 1720. What technical tools can we use at this point or do we see if it rallys up from here for the next 3/4 days prior to entry. Thanks. Khokon.

    Reply
    • Hi Khokon–wow–lots of questions!
      First, pipelines are not yet showing the deterioration that REIT’s potentially are (even REITS, as you note, havent broken the trendline yet–but there is a danger sign as noted in the blog).
      Gold’s first support is here around $1720 at the 50 day MA. We’ll have to see if it holds–otherwise, high $1600’s. I am not buying until I get a bounce and stochastics crossover.

      Reply
  • I’ve been watching the REIT sector since your comments on October 31st. The price of the iShares TSX Capped REIT ETF did drop well below the $16.80 trendline level but since mid November it appears to be trending upwards (higher highs and higher lows).
    Does the more recent upwards trend indicate this sector is technically sound or would you still suggest the current trendline “may be a heads-up for future downside”?
    Your comments would be appreciated.
    Regards,
    Bill

    Reply
    • Hi Bill
      Looks like the drop was more of a spike (ie it didnt last long enough to confirm –my 3%/3 day rule). The trend now looks to be resuming, so REITs actually look OK as at this point.

      Reply

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