Commercial Real Estate to the Rescue?

  • Posted by
  • on June 14th, 2010

Interesting week in the markets, enough to change some of the recent patterns.  In the graphic below, you’ll see that U.S. Fixed Income and Gold are still the Up Leaders, and non-U.S stocks and currencies the Down Leaders.  However, I’d like to point out a few subtle changes that changed enough to warrant consideration of new leadership in coming weeks.

For my style, it’s the subtle changes that offer the best edge.  Systematic trend following is the default in case I don’t manage to pull the trigger on my own, but finding a discretionary entry or exit a little earlier puts me in the trade before it becomes obvious to every trend follower.  My observations from this table are as follows:

1) The end of bearish stats for FXI, DIA, GWX, EEM, and EWY tells me that indiscriminant shorting is over.  That’s not my style anyway, but I now see short entries needing optimum pricing to work.

2) Most longs AND shorts are near reasonable entry levels.  This tells me it’s either a great opportunity for the risk aversion trade to continue, or that latecomers to the trade will need to be nimble rather than patient with any new entries.  Chances are it will be both…shorts should be ready to cover selloffs in the risk trade and sell rallies in the risk aversion trade.

3) Commercial Real Estate(IYR) is very intriguing.  It was the one risk asset that had hung around through most of the correction before finally caving in.  Remaining longs we had in the name were stopped on Non-Farm Payroll day.  However, it may be taking on both the positive characteristics of the bond rally AND the positive characteristics of last week’s stock rally.  In breaking below its 10(flat) and 40(rising) week averages, it shook out a ton of weak holders, and stormed right back to reclaim those averages AND make a higher high in the June 7-11 period.

I won’t make the fundamental case for IYR here…the bear case requires only an awareness of the news flow, while the bull case requires an optimism that the worst is behind.  Depends what color glasses you wear…an open-minded person should be able to take either side of that argument.  I’ll stick with observing the battle and joining the winning side upon resolution.  It may be the key battle to watch in coming days and weeks.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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