REITs Making Bullish Long-Term Move

Posted by jbrumley on May 6, 2016 1:19 PM

Mortgage REITs Up at the Expense of Most Everything Else

With the distinct possibility of stocks taking a sizeable hit in the near future, it would be easy to simply cash out everything and then simply wait on the sidelines for what looks to be the bottom. Thing is, just because stocks are falling - or could fall in the foreseeable future - doesn't necessarily mean everything else has to tumble with equities. There are instruments out there that don't move in sync with the stock market. Mortgage REITs (real estate and REIT ETFs include (IYR) and (REM)) are one of those groups, and interestingly enough that group dropped a big bullish hint just this week.

The chart of the Dow Jones Mortgage REITs Index (DJUSMR) below isn't tough to interpret.  The long-tailed reversal bar from late January (marked with an arrow) did exactly what the shape of that bar suggested it would do. That is, kick-start a healthy rally.  Since then, the index has recovered a great deal of the ground it lost in 2015. Aside from the fact that it pushed above a long-term falling resistance line (dashed), it's also finally pushed above a relatively well-established technical ceiling at 51.53 (red).  It's also put some distance between itself and the 200-day moving average line (green) in first crossed over a week ago.

050516-djusmr

Obviously there are never any guarantees when it comes to trading. There are odds though, and the odds of further upside from mortgage REITs after logging the shape of the chart and developing since late last year are reasonably good odds...  particularly when some traders are going to be rotating out of equities and looking for lower-risk, higher-reward instruments to park that money until stocks stabilize.

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