What Next Week’s Fed Meeting Means for Real Estate

The Fed’s interest rate raises had sent the iShares U.S. Real Estate ETF (IYR) into a near two-year downturn.

As a reminder, the ETF holds a diverse range of commercial property REITs (including industrial, retail, data centers, and healthcare).

So when the Fed pivoted to future rate cuts last October, IYR saw a short, sharp rally. It gained 27% in only six weeks. That was a big move for this sector.

Then, after peaking in mid-December, IYR’s fortunes changed again. It began drifting lower with a sell-down that accelerated earlier this month.

Yet it has recently bounced.

So today, I want to check IYR’s prospects from here…

Gathering Momentum

On the left half of the chart below, you can see the tail end of IYR’s near two-year downtrend.

It had topped out in late December 2021 at $116.89. And it didn’t bottom out until last October at $72.88. That was an almost 38% fall.

iShares U.S. Real Estate ETF (IYR)

Source: eSignal

The last leg of IYR’s downtrend (after its countertrend rally in July) coincided with the Relative Strength Index (RSI) crossing right across its channel from overbought to oversold territory.

Also, the 10-day Moving Average (MA, red line) fell below the 50-day MA (blue line), dragging both MAs lower.

Then a converging pattern between the IYR stock price and the RSI (orange lines) stopped IYR’s fall and set it up for a bounce in October.

This upswing gathered momentum as the RSI bullishly broke up through resistance (green line) and into the upper half of its band.

Likewise, the blue MACD line crossed above the orange Signal line and rose well into its upper range.

Yet after hitting its peak on December 14 (‘A’), IYR’s rally stalled…

Take another look:

iShares U.S. Real Estate ETF (IYR)

Source: eSignal

The MACD rolled over and fell. The countertrend rally that began in February also topped out in March at a lower high (‘B’).

The 50-day MA began tracking lower as the 10-day MA plunged earlier this month.

The severity of that down move resulted from economic data suggesting rate cuts could be further away.

Yet the fall also pushed the RSI into oversold territory, setting it up for a bounce.

IYR rallied as the RSI tracked higher from oversold territory.

That’s a potentially promising move. But for now, both the RSI and MACD are still in their lower bands.

So what should we look for next?

Testing Resistance

It’s still early days with this move…

The real test will come when the RSI retests resistance (red circle). The RSI needs to break through this for IYR’s rally to continue.

If the RSI remains stuck in its lower band, this current up move will become another countertrend rally in a longer-term downtrend.

Another clue also lies with the MACD.

Recently, the MACD line has trended higher and is converging with the Signal line.

If the MACD line can cross above the Signal line and keep tracking higher, then IYR’s bounce could have further to go.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict