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It is rare that you see two different opportunities in two different directions from the same stock, but that is exactly what I see from the iShares U.S. Real Estate ETF (NYSEArca: IYR). The daily chart suggest that the ETF is heading down, while the weekly chart suggest it’s heading higher.
On the daily chart we see that the IYR struggled at the $76 level, just as it did in August before falling over 10% in a few short weeks. We also see that the ETF just dropped below its 50-day moving average for the second time in the last month.
In mid-November when it closed below the trend line, it was able to bounce back the next day and it was in oversold territory based on the slow stochastic readings. Now we see that the fund is below the trend line and it is just coming out of overbought territory with the stochastic readings making a bearish crossover. This suggest that the move below the 50-day moving average won’t be as short-lived as the last one.
The weekly chart looks entirely different and points toward the IYR continuing to move higher. We see a trend channel that has guided the fund higher for the last three years. We also see that the 104-week moving average has proven itself as reliable support and it is slightly above the lower rail of the channel.
So what does it mean when the two charts are pointing toward two different outcomes? If you are a short-term trader, you can make short-term bearish play on the stock with a target move of 5% to 10%. The leverage of put options would result in a bigger move if the IYR falls like I think it will.
If you are a long-term investor, I would look to buy the IYR on the pullback that the daily chart is suggesting is about to occur. Ideally, you will be able to buy it in the $69 to $71 range, between the 104-week moving average and the lower rail of the channel.
Bullish on Real Estate ETF
Besides the weekly chart, there are a couple of other factors that make me bullish on the real estate ETF for a long-term investment. First, the fund pays a dividend that is currently yielding 3.8%. This is a pretty respectable yield in today’s low interest rate environment.
Secondly, the risk factors of the real estate ETF suggest the fund is less risky than the overall market. Without getting too complicated, an investment’s beta reading measures how it moves compared to the overall market. A beta over 1.0 means a stock is more volatile than the overall market while a reading below 1.0 means the investment is less volatile. The beta reading for the IYR for the last three years is 0.54, meaning it has been approximately half as volatile as the S&P 500.
So what we have is a short-term bearish outlook that should lead to a great buying opportunity for long-term investors. The real estate ETF is in an upward trend and it has a respectable yield for those looking for income investments. It also has the benefit of being less volatile than the overall market at a time when volatility is elevated.
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