Starting off with the RRG, we can immediately see sectors which are gaining in relative strength therefore provide the highest probability of outperforming the index. Financials and energy remain on positive rotation however not much has changed since our last deep dives covering these sectors.
Another sector on positive rotation is real estate, moving into the improving quadrant of the RRG.
Relative Rotation Graph SP500 sector ETF's
The Price - earnings - growth (PEG) filter doesn't show a lot of 'undervalued' companies for the time being, although there is some green in the real estate sector in which we are focused on.
Heatmap Sp500 filtered by PEG
Real Estate ETF (Daily candlestick chart)
The ETF in itself looks to offer up a good buying opportunity as it has reacted off a strong supply zone around $33 for the second time. Structurally we have broken to the upside and MACD have flagged a BUY signal, and with RRG pointing towards a move into leading rotation quadrant, the undervaluation seen in the PEG ratios could filter through into an outperformance of the ETF.
Strategy:
Long positions above supply $33
Exits upon 2 consecutive daily close and break below $33
Upside targets ultimately back towards the highs at $52, with intermediate term target of $41/$45.80
Public Storage (PSA)
As one of the most undervalued stocks in the sector as per PEG ratio, PSA stands in good ground to support a move in the sector given the technical base. PSA appears to have found a base and is rangebound holding above $270 which I would consider as a line in the sand if this market were to take a bearish turn. Furthermore, MACD has flagged a BUY signal which is not a sole indicator but gives some confidence as to a shift in momentum when other factors align. Currently we are sitting on range tops which is not ideal for leveraged positions however investors in ordinary shares may not be phased by the possibility of a slight pullback.
In addition to technicals, we like to see companies fundamentals supporting price. We can see dips below the blue line (price correlation with operating cash flow) tends to find buyers as value is seen in the market. We are currently seeing a dip below the P/OCF ratio line suggesting that a mean reversion has completed and it's time for further upside.
Strategy:
Hold /Open core long positions as long as the market remains above the current range bottom of $270
Consider holding until resistance is met once again $359/ $420 and beyond
Leveraged investors may consider a break and retest of said range for better risk reward
Camden Property Trust (CPT)
CPT has been firmly in a bearish trend since July 2021, however after losing around 50% of its value. Unsurprisingly really after the FED's rate hike schedule, slowing down asset prices and inflation, making the cost of property more expensive.
PEG shows undervaluation in the market at 0.69, the 2nd lowest in the positively rotating sector.
With that in mind, the market appears to be pricing a slow down in rate hikes into the summer which will give a breather to the likes of CPT and their increasing cost of acquisitions. Similarly to PSA, the price/OCF ratio has been a solid historic indicator for buying dips and price recovery. We can see how well the market has tracked the price/OCF cash flow ratio which could remain true for the remainder of 2023.
Strategy:
Core long positions towards 2021 peaks of $180
Leveraged positions should consider a stop loss below supply zone of $85 or open hedges until a more decisive rebound in underway.
American Tower Corporation (AMT)
AMT has been somewhat rangebound since 2020 after a hard rally into $300. The supply zone from $178 - $196 will hold of up most importance to this market as monthly MACD point heavily bearish, a snap lower of this support could pave the way lower and make this appear to be a large topping pattern. Given the overvaluation (as per PEG), the idea is as follows:
Strategy:
Hold core longs above $178 but do not add new positions.
Consider an intermediate term hedge short or close longs if we break below $178.
Equity Residential (EQR)
Similarly, EQR has been selling off however is heading in towards an important supply level which the market has not traded below since 2010. With positive rotation in the sector this would be a stock I would watch as it approached $50-$55 where we might find a BUY signal as per our MACD. Momentum remains bearish for the time being therefore our preference would be to await a price 10-15% below current market value.
Once again the price/ OCF (blue line) has acted as dynamic support since 2012, highlighting when the stock could be considered good value, albeit with a high PEG of 1.9.
Strategy:
Consider new core long positions above $45 for a long term bullish view
Leveraged positioning would require a stop loss around $45 / or await lower timeframe confirmation of a trend shift.
Summary
Consider new positions in PSA /CPT / XLRE ETF / EQR as market rotation move positive. Be cautious with ranging markets or those with overvalued PEG ratios such as AMT / EQIX /DLR as technically they appear to have lost momentum whilst being fundamentally overvalued relative to the broader market.
Feel free to contact us with regards to any of this analysis, or additionally if you have any questions regarding other stocks within the sector.
Trade Safe.
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