The market is finally seeing some selling, as investors are beginning to feel the effects a short-term overbought situation. While the short-term selling may shake some traders out of the market, the bigger picture suggests that this should be no more than a pause that refreshes the market as it preps to move higher.
With that outlook, the nimble traders are scoping the market for pullback candidates to move into at a discount. One group of stocks that have been sliced lower over the last few weeks are the Real Estate Investment Trusts or REITs. Most of the stocks have been surging higher as investors have been attracted to the group for its strong fundamentals and high yield payouts that have served as a surrogate for yields as investors begin to move out of bonds to avoid looming interest rate risks.
Federal Realty Investment Trust (FTR) engages in the ownership, management, development, and redevelopment of retail and mixed-use properties. The shares pay out a 2.6% dividend to investors while boasting a volatility measure that is about 8% lower than the S&P 500. This attractive combination had shares of FRT leading the market until a few weeks ago.
Click to Enlarge Now, with the stock trading almost 8% off of its highs, FRT shares are presenting themselves as a technical buy as three of our indicators are calling this REIT a screaming buy. First, FRT’s chart is signaling a technical buy as share prices are resting at the $110 level. Per the chart below, $110 represents historical chart support and resistance (red horizontal line) along with the same price level as the shares’ 100-day moving average. This double-barreled technical support should help shore up technical selling as technicians are likely to see the stock as a technical buy. In addition to the chart, the shares have hit an oversold reading according to their short-term RSI readings, their first since November, when the shares started their rally from $100.
Given the technical support at $110, we see shares of FRT as a technical buy and a worthy addition to a traders’ portfolio. Consider an intermediate-term (three to six months) target of $120 for the shares as the market returns to REITs for their dividend yields and technical leadership. Options traders may consider at-the-money calls as a way to leverage the expected move.
Trader X frequents national investment conferences and has developed several market analysis tools that harness the powerful combination of behavioral analysis and technical analysis. He has decades of experience as a registered broker.
But we can’t reveal the source of this trade. Trader X’s privileged insight means he needs to be careful. He must act anonymously. While his identity can’t be known, Trader X will pull back the curtain to the trades he’s discovered.