REITs are in a rout.
Since peaking back in August, real estate investment trusts, better known as REITs, have been under pressure - for instance, the SPDR Dow Jones REIT ETF (RWR) has sold off more than 13% over that three-month stretch, lagging the broad market averages in a big way. And the selling in REITs has only accelerated post-election, as investors gear up for the prospect that President-Elect Donald Trump could pressure higher interest rates from the Federal Reserve.
That upward interest rate pressure has translated in a selloff for REITs, which are hugely rate-sensitive because of their huge dividend yields. If yield becomes easier to find in lower-risk assets, there's a lot less buying pressure after REITs from dividend-chasers.
At this point, it's too early to call the REIT rout over. The industry could still fall further from here - which is especially bad for anybody chasing yield, considering the fact that the REIT indices have basically unwound three years of dividend payouts in the last three months. But there's a silver lining to those black clouds. Even as REITs continue to face pressure this fall, a handful of these stocks are actually teetering on the edge of breakout territory.
Not only do the REIT breakouts we're looking at today stand to charge higher from here, they could also post some outsized returns when the broader REIT industry finds its price floor. In the meantime, we're turning to the charts for a technical look at five big REIT breakouts to buy after the election.
In case you're unfamiliar with technical analysis, here's the executive summary: technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, here's a rundown of five technical setups that are showing solid upside potential right now...
Hudson Pacific Properties
Up first is Hudson Pacific Properties (HPP) , a $4 billion office REIT that currently yields 2.45%. At the same time its peers have been rolling over, Hudson Pacific has been holding up - shares are sitting on nearly 16% gains since the start of 2016, not counting this stock's dividend payout year-to-date. But don't worry if you've missed that upside move so far; the price setup in HPP signals higher ground ahead.
Hudson Pacific is currently forming an ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance up above shares at $34, and uptrending support to the downside. Basically, as Hudson Pacific bounces in between those two technically significant price setups, it's been getting squeezed closer and closer to a breakout above that $34 price ceiling. When that happens, it's time to be a buyer...
Relative strength, the indicator down at the bottom of HPP's price chart, is the additional piece of evidence for the breakout that investors should be paying attention to here. Our relative strength line, with measures this stock's outperformance versus the rest of the broad market, has been in a well-defined uptrend since February - as long as that uptrend in relative strength remains intact, HPP is statistically more likely than not to keep on outperforming. More importantly, it signals that this REIT isn't getting dragged down alongside its average peer this fall.