On May 16, we took a fresh look at the property sector.
With interest rates rising twice so far in 2022 (with more rate rises to come) the iShares U.S. Real Estate ETF (IYR) has experienced loads of volatility.
As the chart below shows, after falling heavily from the start of 2022, IYR rallied through March and into April.
However, after making a lower high on April 21, a fresh wave of selling soon saw IYR trade at its yearly low.
When we last checked IYR on May 16 (red arrow on the chart), it was trading down around 20% for the year.
May’s heavy selling saw IYR test a key indicator and had it looking set for a quick bounce.
Today, I want to see how that move played out and talk about what we can expect from here.
Check out IYR’s chart…
iShares U.S. Real Estate ETF (IYR)
Source: eSignal
There are a couple of signals that led to IYR’s fall…
While IYR made higher highs in April, the Relative Strength Index (RSI) made lower highs.
The orange lines show the divergence between the stock price and the RSI that led to a change in direction… in this case, down.
You can also see that after forming an inverse ‘V,’ the RSI tracked lower and broke down through support.
The 10-day moving average (MA – red line) crossed down over the 50-day MA (blue line), further confirming the downtrend.
But as we noted back then, the RSI forming a ‘V’ in oversold territory (below the lower grey dashed line) could soon see IYR bounce.
And that’s exactly how things played out…
As the RSI retraced back up to resistance (green line), IYR showed some promising signs and rallied back up to the $100 level.
So, what can we expect from here?
Let’s take another look…
iShares U.S. Real Estate ETF (IYR)
Source: eSignal
Right now, the RSI is tracking right along resistance… what happens around this level will determine the direction IYR takes from here.
If the RSI breaks back above resistance and holds in the upper half of its range, then we can expect IYR to continue rallying.
The next test for IYR would be to reach the 50-day MA at around $104.
However, we need to remind ourselves that today’s market is extremely fickle… sentiment can turn on a dime.
If the RSI can’t break resistance – and instead meanders along the green line or retraces lower – then any rally in IYR will quickly fade out.
We saw this back in February and March (red circle).
When the RSI formed a ‘V’ from oversold territory, both rallies fizzled out when the RSI ran into resistance…
Only when the RSI finally broke higher in mid-March did IYR’s rally gain any traction.
If the previous chart pattern from February and March repeats – meaning that the RSI rebounds lower off the green line – then IYR’s recent rally could soon reverse.
And that could provide the setup for a potential short trade.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reader Mailbag
What direction will IYR take next? Will it gain enough traction for a rally?
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