Watching for a Rollover in This Real Estate ETF

 | Jan 10, 2017 | 11:36 AM EST
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Stock quotes in this article:

IYR

Anticipating tops rarely works out for traders, but recognizing the potential for rollovers offers a much better risk-reward. Clearly, it isn't perfect and you'll have to sacrifice the bragging rights of top ticking a security, but bragging rights don't pay the bills and tend to get a trader into trouble, so consider this approach well-served on multiple fronts.

It's been challenging playing the downside of almost anything equity related for about as long as I can remember. Heck, we live in a world where my children can't remember a school-age bear market. Will it come this year? No idea yet, but I will continue to watch for consolidations, pullbacks, and longer-term pattern overlapping shorter-term setups. We might just have that in the iShares US Real Estate ETF  (IYR) right here.

Overbought can become more overbought, as I mentioned earlier today, but IYR is no longer overbought on the daily chart. We have left overbought territory with a bearish crossover in the Full Stochastics.

This has been a negative for the ETF. At the very least, we should expect a test of the current support line around $76.60. Fortunately, this is still well above the 50-day simple moving average (SMA).

Normally, I'd be looking to buy IYR around the support level of $76.60, but there are two big flags here that have me on edge. First, we have an ADX line continually making higher lows. Trend is failing, and we may be heading into a trading range, rather than a trend. That brings risk buying pullbacks. Bounces tend to be smaller and breakdowns more prevalent.

Second, and more importantly, the longer-term Full Stochastics may be seeing the same bearish crossover into overbought territory as we just experienced on the short-term Full Stochastics. At the very least, we'll need a few weeks, likely two months, of consolidation to see this possibly change. The good news for bulls is that we haven't officially crossed bearish yet, and there are still a few days left this week. But I would keep a very tight stop on any long REIT-related position unless we see the potential bearish cross setup change. For that to happen, IYR would have to rally either late this week or next week. This one is definitely worth a watch for a potential short trade.

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