This morning, I am recommending a bullish trade on UDR, Inc. (NYSE:UDR), the self-administered real estate investment trust (REIT) that acquires, develops and manages multifamily apartment communities.

Since last Friday, S&P 500 has moved higher by 2.6%. My indicators are now confirming the latest rally by giving bullish readings for the first time since late July, an upgrade from last week’s bearish readings. However, the bulls are not out of the woods yet.

They still have to get through the end of August as well as September, another notoriously bearish month for the market. And they will be dealing with a lot of resistance in the S&P 500 as well.

However, I am seeing another bullish sign in the options market. I’ve said before that when everyone moves to one side of the boat, that’s when it’s most likely to capsize. Well, right now, option buyers are leaning very heavily toward bearish put options.

The ratio of put buying to call buying is at a recent high right now, which is a contrarian sign. Typically, when the put/call ratio is this high, it’s a sign of a near-term bottom. For example, put buying greatly outnumbered call buying at the depth of the selloff in late 2018, as well as the most recent bottom at the start of June.

In each of those instances, the market rallied sharply higher afterwards. The bears capitulated and started buying stocks again, leading the market to the upside once more, and I think we might see that happen again.

With interest rates in the U.S. remaining low, I want to look at housing stocks for bullish trades.

Following the Common Wisdom

Turning briefly to the bond market, the spread between the 10-year U.S. Treasury yield and the 2-year U.S. Treasury yield fell has inverted once again. As a reminder, an inversion occurs when short-term rates are higher than longer-term rates.

10-Year Treasury Yield Minus 2-Year Treasury Yield — Chart Source: FRED Economic Data

As you can see in the chart above, that is the case right now. But while many are saying that this is a sign of economic weakness and that a recession is right around the corner, I think this is more a result of the current dynamics in the global bond market.

With all of the money-printing by central banks around the world, bond yields are in negative territory in many major economies, and that has caused global investors to flock to U.S. Treasurys and push yields lower. I think that’s one of the main reasons for the recent inversions.

With Treasury yields low and interest rates heading down, where can investors turn for long-term investments? One place many consider is REITs.

REITs usually pay larger dividends than other stocks, and they may even be a place to look for growth. Lower rates means borrowing money is cheaper, which means companies like UDR can develop more housing.

Looking at its technical picture, we can see the stock may already be benefiting.

Above Both Moving Averages

In late April 2019, UDR dropped down nearly 6%, but it found support at around $43. Since then, the stock has started making higher-lows, which is a good sign.

Daily Chart of UDR, Inc. (UDR) — Chart Source: TradingView

Now the stock is trading above its 50- and 200-day moving averages (MAs), and its 50-day MA is even acting as support.

The stock did experience a substantial drop after reporting earnings at the end of July — it met earnings per share expectations, which can sometimes disappoint investors — but I think there is plenty of optimism around UDR now that the Federal Open Market Committee has cut rates.

I’m recommending a bullish call option with a strike at $50. The stock doesn’t need to move far for us to earn a profit on this trade.

Buy to open the UDR, Inc. (UDR) Oct. 18th $50 Calls (UDR191018C00050000) at $0.60 or lower.

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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.