One of the biggest stories in the market last year was the huge unraveling of tech stocks…
When the Nasdaq hit its October low, it represented a 36% drop for the year. That wiped trillions of dollars from investors’ accounts.
However, there was another sector that faced similar losses but with far less attention…
The iShares U.S. Real Estate ETF (IYR) also dropped a massive 35% by the time it bottomed out in October.
But since then, IYR has been slowly grinding higher. So today, we’ll check out what’s in store as we look for potential trades…
Buying Momentum Is Key
The chart of IYR below shows a textbook bearish pattern…
The 50-day moving average (MA – blue line) trended down through 2022. And IYR made a series of lower highs at ‘A,’ ‘B,’ and ‘C’…
Take a look…
iShares U.S. Real Estate ETF (IYR)
Source: e-Signal
As you can see, within this strong downtrend, IYR made multiple counter-rallies.
Each of these was triggered whenever the Relative Strength Index (RSI) made a ‘V’ and rallied from oversold territory (lower grey dashed line).
When that buying momentum stalled at resistance (green line), IYR rolled over and headed down once more.
But when momentum pushed the RSI into the upper half of its band, IYR rallied even stronger at the ‘A,’ ‘B,’ and ‘C’ peaks.
The reversals off those peaks then coincided with the RSI forming an inverse ‘V’ from overbought territory. And the sharp down move that followed the most recent peak at ‘C’ saw the RSI track right across its channel.
However, a common reversal pattern indicated a potential change in direction. Take another look at the chart…
iShares U.S. Real Estate ETF (IYR)
Source: e-Signal
As the RSI was making higher lows (lower orange line) out of oversold territory, IYR was still heading down (upper orange line). That steady increase in buying momentum caused IYR’s fall to reverse and subsequently bounce off its low.
When we last checked IYR on December 1 (red arrow), it was showing promising signs of an emerging rally. The RSI was pushing up through resistance and gaining traction in the upper half of its band.
However, as you can see, that rally ran out of steam. The RSI began to track sideways before falling back below support.
Now, with the RSI back in its upper band (red circle), IYR is again pushing higher.
So what am I expecting from here?
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Looking for Confirmation of an Uptrend
For IYR’s recent rally to regain momentum, the RSI needs to remain in the upper half of its range.
The longer the RSI can remain in its upper band, the longer any potential rally will be. The next test for IYR would then be to break above short-term resistance (red line) at around $91.
I’ll also be watching our two MAs. Recently, the 10-day MA bullishly broke back above the 50-day MA.
If the 10-day MA continues to accelerate above the 50-day MA – and both continue to track higher (as they are now) – then that’ll add further evidence of an emerging uptrend.
These two bullish signals could then provide the setup for a potential long trade.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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