Key Takeaways

  • Monday’s rally has reached SPX, QQQ targets and right below 200-day moving average
  • Defensive groups like Utilities and REITS fared far better performance wise than Financials or Industrials
  • REITS broke out to multi-week highs Monday, a development which should help relative performance continue to improve  
REITS attractive given relative breakout vs SPX

The US Equity rally continued without any hint of reversals taking place, though SPX is now nearing its key make-or-break levels just under 4600 while QQQ reached its 50% retracement zone just under its flat 200-day moving average.  Given the pickup in Defensive trading lately (Both Utilities and REITS up more than +0.70% Monday, while Financials were negative and Industrials up just fractionally) it will pay to continue to advocate a defensive stance, expecting prices to hit resistance over the next week and reverse course.  At present, 4600 will act as the key line in the sand for SPX, while QQQ has resistance now at 369-370. 

REITS attractive given relative breakout vs SPX
Source: Trading View

REITS breaking back out to new multi-week highs

One of the more interesting developments in recent weeks has been the extent to which defensive rate-sensitive groups like Utilities and REITS have been able to outperform, despite Treasury yields having shot up rapidly.  Both of these groups have shown better performance than Technology on a 1 month, 3-month, and YTD basis. 

Importantly, both relative and absolute charts of the REIT group show breakouts which make this group attractive on both a short-term, and an intermediate-term basis.    

Some of my favorite REITS from a technical perspective are:  EXR 0.17% , and  PSA 0.68%  from the Storage space,  BXP 3.42%  from Office property,  KIM 1.29%  remains one of my favorite Shopping Center REITS.  Meanwhile  VTR looks appealing within Healthcare REITS.  In the Apartment group which has shown above-average technical strength, top names to consider are:   AVB 1.02% ,  EQR 0.86%  and  UDR 1.08% .  Furthermore,  PLD 1.06%  and  WELL should round out the list.  Thus, 10 REITS listed above are some of my technical standout picks that are all trading well these days and should continue to exhibit above-average technical strength.

Below is a daily chart illustrating Monday’s (3/28/22) breakout of the Invesco Equal-weighted REIT ETF ( EWRE) back to multi-week highs.  This particular pattern takes on more importance given its technical resemblance to a reverse Head and Shoulders pattern.  As seen, Monday’s close has carried EWRE above early March and also February peaks.  Further rallies look likely as a result of this technical strength, and REITS should be favored to outperform.

REITS attractive given relative breakout vs SPX
Source:  Trading View

REITS have just achieved six-year relative breakout vs SPX

Interestingly enough, this REIT strength is not just a short-term absolute breakout but has happened on intermediate-term charts as well relative to the SPX.  Weekly seven-year charts of Invesco’s Equal-weighted REIT ETF ( EWRE) vs. SPX just broke out of its longer-term downtrend from 2016.

Thus, despite rates having pushed up to resistance, we continue to see more evidence of defensive trading.  As discussed last week, Treasury yields are now nearing resistance and should be on the verge of turning down, while geopolitical tension remains on the front burner.

Given absolute and relative charts of defensive groups like the Utilities (Shown last week) and now the REITS, it remains correct to position in these groups in the weeks/months ahead, and particularly in REITS within striking distance of 52-week highs.

REITS attractive given relative breakout vs SPX
Source:  Trading View

WTI decline likely represents buying opportunities for Energy – Crude oil fell sharply Monday, though structurally hasn’t really given much of a reason to want to avoid buying dips on this pullback.  Daily charts show the sharp rally from mid-February nearly having been completely given back before its bounce attempt carried Crude back to over $116.   Weekly momentum for Crude remains positive, and uptrend lines remain very much intact on weekly charts.

Importantly, the wave structure on this bounce in early March took on impulsive characteristics and one can discern five waves higher, while the subsequent correction has played out thus far merely as a three-wave decline.  Thus, from an Elliott-wave perspective, this kind of price action remains constructive, and something to buy into as just a minor pullback, not a major selloff worth avoiding.

Overall, I don’t view Crude as having a chance to make too much of a selloff just yet given the pattern of its recent weakness.  Its weakness should find support near 102, just below current levels, and then turn back higher to test and break early March highs.

Looking at the three-hour chart below, WTI Crude’s pullback has helped to alleviate recently overbought momentum on daily and more importantly, intra-day charts for Crude, and the worse case scenario right now likely would allow for a giant triangle pattern to form over the last month before this pushes higher.  Bottom line, while many are speculating about the prospects of a peace deal in the Russia/Ukraine situation, technically there doesn’t seem to be too much to support an ongoing pullback at this time.   Dips should prove to be buyable and only if March lows are violated ($93.44) would trends argue for a more prolonged correction.

REITS attractive given relative breakout vs SPX
Source: Trading View
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