The XLRE ETF Has a Lot to Tell Us About Real Estate

 | Feb 16, 2017 | 12:18 PM EST
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The Real Estate Select Sector SPDR -- the newest addition, with the symbol (XLRE)  -- has performed weaker than the S&P 500 since November. Whether this is being driven by the spectre of rising interest rates, or that growth in other sectors is more promising, does not matter to a technical analyst. The bottom line is that the S&P 500 has risen 24% over the past twelve months -- and the Real Estate sector only by 12%. Let's look closer.
In this chart of the XLRE, below, we can see the big gap between the S&P 500 and the XLRE. The limited history of the On-Balance-Volume (OBV) line matches the mostly sideways price action. Price momentum since December has slowed and suggests more of the same in the near future.
Drilling down to some of the individual names in the XLRE, we found three names that you might lighten, raise your sell stops or even sell altogether -- AvalonBay Communities  (AVB) , Prologis (PLD) and Equinix (EQIX) .
This chart of AVB, above, shows a downtrend in the past twelve months. Prices recently rallied above the 200-day moving average line, but the volume pattern has not improved and the On-Balance-Volume (OBV) line has been slipping in the past year and suggests sellers have dominated. ABV has made equal highs in January and February to date, but momentum has made a lower high for a bearish divergence.
In this chart of PLD, above, we can see a rolling or rounded top formation since June. Prices are below the declining, 50-day moving average line and the cresting, 200-day moving average. A bearish divergence in December looks like it foreshadowed the weakness in January. The OBV line is weakening with the price action. A close below $48 and then $46 will put the bears in control.
In this daily chart of EQIX, above, we can see what could become a double top around the $390 level. Prices are turning lower now, and could soon test and break the rising, 50-day and 200-day moving averages.
Bottom line: These are just three names in the XLRE that look vulnerable. There are others -- and again you need to see which securities need to be culled.

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