The Next Test for This Sector Lies with This Key Level

A few weeks ago, we checked in on the iShares U.S. Real Estate ETF (IYR)…

While huge falls in Big Tech and the Nasdaq (down 36%) dominated the headlines last year, commercial real estate also took a massive blow.

By the time IYR bottomed out in October, it had fallen 35%.

Since then, IYR has been steadily climbing higher. And it just recently traded at a five-month high.

However, with that upward move starting to reverse – and buying momentum about to retest a key level – today I want to see what’s in store from here on out…

A Common Reversal Pattern

The chart of IYR below shows how it was stuck in a downward pattern through October last year…

During that down move, IYR made a series of lower highs in April (‘A’) and August (‘B’) – and, prior to that, in December 2021.

The long-term 50-day moving average (MA – blue line) steadily trended down too…

iShares U.S. Real Estate ETF (IYR)

Source: eSignal

As we noted when we looked at IYR on January 25 (red arrow), the Relative Strength Index (RSI) showed a number of discernible patterns…

When the RSI formed a ‘V’ from oversold territory (lower grey dashed line) and rallied up through resistance (green line), IYR went on to rally to those peaks in December 2021, April 2022, and August 2022.

However, that RSI buying momentum failed to penetrate resistance, and IYR’s counter-rally ended.

Also, IYR’s reversal off those peaks coincided with the RSI reversing lower off overbought territory (upper grey dashed line).

Each following down leg was then confirmed by the 10-day MA (red line) crossing below the 50-day MA.

IYR bottoming out and reversing in October coincided with another common reversal pattern…

Take another look…

iShares U.S. Real Estate ETF (IYR)

Source: eSignal

As you can see, while IYR’s stock price made lower lows (upper orange line) through October, the RSI made higher lows (lower orange line).

When buying momentum is steadily increasing like this, then eventually the stock price gets pushed up, too.

This increased buying momentum saw the RSI break back into its upper range… with IYR topping out at ‘1.’

Then, after a brief fall below support, the RSI again broke back into the upper half of its range.

This time, however, that momentum pushed the RSI into overbought territory. It formed an inverse ‘V’ and saw IYR top out at ‘2.’

But now, with the RSI reversing back toward support, what can we expect from here?

Retaining Strong Momentum

With IYR making a higher high (‘2’ versus ‘1’), the chart right now is showing some promising signs…

However, any prolonged rally will ultimately depend on IYR retaining strong buying momentum.

For IYR’s rally to continue, we’ll want to see the RSI remain predominantly in the upper half of its range…

The other thing to keep watch on is our two MAs…

Right now, the 10-day MA is accelerating above the 50-day MA. Both MAs are now bullishly trending higher.

If this pattern continues, the next big test for IYR’s rally is to take out its peak at ‘B.’

In the immediate future, though, buying momentum is key…

Should the RSI instead break into (and get stuck in) its lower half, then IYR’s current pullback will have further to play out.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

P.S. There’s one more pattern I’ve been watching in the markets lately. It has to do with government data releases… which are creating spikes of activity traders can use to profit.

I see 32 specific days with these releases this year… and I’m putting together a downloadable calendar with each date marked. There’s one coming up just days away…

And I’ll discuss this phenomenon in more detail at my upcoming briefing on February 22.

So to get all the details and RSVP with one click, simply go right here.

Reader Mailbag

Will IYR repeat the same patterns as last year? Or will we see a sustained rally?

Let us know your thoughts – and any questions you might have – at [email protected].