U.S. Real Estate

U.S. Real Estate stocks continue to rebound following a recent sharp decline.  During May and June, U.S. Real Estate stocks declined by -17% amid concerns that rising interest rates would undermine the valuations associated with the stocks in this yield sensitive sector.  But as interest rates have stabilized along with the broader stock market in recent weeks, U.S. Real Estate stocks found their footing and resumed their ascent to the upside.

U.S. Real Estate stocks show the strong potential to continue moving to the upside in the near-term.  The sector, which includes names such as Simon Property Group (SPG), Public Storage (PSA), HCP (HCP) and Ventas (VTR) among others, continues to offer a high quality yield at 3.6% that remains attractive relative to other income producing investments.  U.S. Real Estate stock valuations are also a bit more reasonable following the recent correction and compare favorably relative to other broader market stock segments.  The fact that the sector is domestically oriented is also a plus, as the economic outlook in the U.S. is stronger versus the rest of the world.

U.S. Real Estate stocks are also benefiting from a favorable technical backdrop.  After bottoming in late June, the sector made quick work in reclaiming its 200-day, 150-day, 100-day and 50-day moving averages.  It has since entered into a steady upward advance toward its previous high set in late May.  Both relative strength and momentum readings are providing a consistently strong tailwind for the sector in supporting this advance while also suggesting further room to the upside in days ahead.

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A long position was established on July 11 in U.S. Real Estate stocks via the Vanguard REIT VIPERs ETF (VNQ).  The initial upside target is set at its previous highs of $78.11, which represents +9% upside from the initial purchase price at $71.45 per share.  The initial time horizon on the position is between 30 to 45 days.  The initial downside tolerance was set on the position at the upward sloping 150-day moving average with a price of $69.18, representing -3% downside, but since that time the position has advanced and the downside tolerance levels have been revised higher.  The first downside support level is now set at the upward sloping 100-day moving average currently at $71.14, which represents -0.4% downside from the initial purchase price.  Secondary support is now at the now upward sloping 20-day moving average currently at $69.89, representing a -2% downside from the initial purchase price.  And given that these support levels are upward sloping, the downside potential associated with the position will continue to diminish as the position continues to advance.  As always, the initial and revised target levels will be subject to additional adjustment and fine tuning as the position evolves going forward.

This post is for information purposes only. There are risks involved with investing including loss of principal. Gerring Wealth Management (GWM) makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by GWM. There is no guarantee that the goals of the strategies discussed by GWM will be met.

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