A couple of weeks ago, we took a close look at the real estate sector.
We saw how low interest rates and the Fed’s huge money-printing program had seen the iShares U.S. Real Estate ETF (IYR) double in less than two years.
But as we came into 2022, that strong buying momentum evaporated. Instead, rising interest rates saw IYR lose 25% of its value by mid-June.
However, on September 14 (red arrow on the chart below), IYR had rallied off its lows before peaking in mid-August. After a brief pullback, it showed promising signs of its rally resuming.
But that proved to be a false move. So today, we’ll see what’s in store for this important sector…
New Yearly Lows
On the chart below, the 50-day moving average (MA – blue line) shows IYR’s long-term downtrend.
It began when IYR peaked at ‘A’ and then made lower highs at ‘B’ and ‘C.’
iShares U.S. Real Estate ETF (IYR)
Source: eSignal
As you can see, each major move down coincided with two key technical signals:
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The 10-day MA (red line) broke strongly down through the 50-day MA.
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The Relative Strength Index (RSI) reversed from overbought territory (upper grey dashed line).
However, today I’m going to focus on the action from ‘C’ onwards.
After forming an inverse ‘V,’ the RSI broke down through support (green line) before selling momentum waned near oversold territory (lower grey dashed line).
This saw IYR retrace and bearishly pull the 10-day MA below the 50-day MA.
Initially, IYR rallied off its September 1 low after the RSI formed a ‘V’ and bounced. For this rally to gain traction, the RSI needed to break into and remain in the upper half of its range.
But, the RSI ran out of momentum around resistance (red circle) and reversed sharply. Then, the 10-day MA began to accelerate below the 50-day MA at a steep angle.
Take another look…
iShares U.S. Real Estate ETF (IYR)
Source: eSignal
Not only has this action driven IYR to new yearly lows – but to its lowest level since November 2020. It’s also put the RSI a long way into oversold territory.
With so much momentum against IYR right now, what can we expect from here?
A Countertrend Setup
What happens around the RSI is vital to IYR’s next move.
Now that it’s far into oversold territory, we can expect mean reversion to generate a countermove against the major downtrend.
However, with the stock price falling daily, we must be particularly careful and nimble if we want to catch any move.
First, the RSI needs to form a definitive ‘V’ as it did this year in January, February, May, June, and September.
Then, it needs to rally toward resistance before we consider entering a long trade.
Each time the RSI created this pattern – IYR bounced. And this provided the setup for a potentially profitable long trade.
But remember, we must be quick to take any profits as soon as we see them. Because as the chart shows… sentiment and direction can turn in a heartbeat.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reader Mailbag
In today’s mailbag, new subscribers to One Ticker Trader and The S&P Trader share their first experience with our services…
Larry, this was a test run for me. I bought one contract. Normally, I would’ve invested $5,000 and that would have netted me about $600. That would’ve been great! So, we did well.
This type of trading fills quickly. It was surprising. I’m used to iron condors and all four have to fill… Sometimes it’s difficult to get in. But I got in and out immediately with QQQ. I sold at $6.43. I think it’s high was $6.50. I’m looking forward to seeing your next alert. Thank you!
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Hi Larry,
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I made your trade on September 22, and I’m very happy. I made $550 per contract. I’ve read your information several times, and it’s been extremely helpful. Being conservative, I’m starting out very small as you suggested. Thank you again for your expertise in guiding us through this process.
– Carol Y.
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