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1 Stock to Buy, 1 Stock to Short: REITs

REITs offer opportunity on the short and long side


All day I scan the charts looking for technical patterns to trade. My Trending 123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and though most people think of REITs as solely in the realm of income investors, it is showing two technical events that signal big moves up and down for traders to take advantage of.

Continuation Diamond

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Simon Property Group
(NYSE:SPG), a REIT that owns and operates retail real estate such as malls and outlets, has developed a continuation diamond over the past 185 days.

As you can see in the chart, the price has broken upward out of a long-term consolidation period, suggesting a continuation of the prior uptrend. The pattern begins during a downtrend as prices create higher highs and lower lows in a broadening pattern. Then the trading range gradually narrows after the highs peak and the lows start trending upward. When the price breaks upward out of the diamonds boundary lines, it marks the resumption of the prior uptrend.

The duration of the pattern is considered to be an indicator of the duration of the influence of this pattern. Since this pattern is fairly long-term, it will take longer for the price to move to its target.

Recommendation: Buy SPG for a $177.00 – $181.00 target, with a $154.89 stop.

Megaphone Top

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Investors Real Estate Trust
(NYSE:IRET), a REIT with income-producing properties in Minnesota and North Dakota, has developed a megaphone top over the past 29 days.

The recent broadening action tells us that trading has been out of control, but a breakout on the downside suggests we’re starting a more decisive downtrend. With its broadening price swings, the megaphone represents a market that’s unstable and out of control. It typically consists of two successively lower lows between three higher highs, and the reversal signal occurs when the price breaks down below the second trough (the lowest lows) as a sign of a more decisive bearish move.

Keep in mind though, that when you short a dividend-paying stock, you are liable to pay the dividend if you hold it as of the ex-dividend date (estimated to fall around mid-June). However, we are working on the assumption that we will be out of the trade by then.

Recommendation: Short IRET for a $8.80 – $8.90 target, with a $10.26 stop.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.  For more information on which service is for you click here.

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