Real Estate moved ahead of Consumer Staples within DALI, but is that a sign of better things ahead? Today, we answer that question and provide stronger ideas within the sector.
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Real Estate has been one of the market’s biggest laggard for some time, but movement this month saw the sector move ahead of the Consumer Staples group in our DALI rankings. Given Real Estate's recent uptick in rank, should we take the move as a sign of brighter things to come?
While the sector did technically move up in rank, the move was driven more by weakness from Consumer Staples than strength from Real Estate. Since the start of July, Real Estate has actually fallen three signals in DALI, but Staples saw further downside for it to lose eight signals. Investors would need to look back to 2022 to find the last time that Real Estate ranked higher than 7th in DALI’s rankings, highlighting the sector’s long-term lack of relative strength.
Looking at the Real Estate Select Sector SPDR Fund (XLRE), it continues to trade in a negative trend and holds a weak fund score of only 1.73, which is 1.92 points lower than the average US fund. It has only been on a market RS sell signal since 2013, further showcasing its lack of long-term strength. XLRE faces significant resistant overhead resistance at $42, in addition to its bearish resistance line. Overall, the representative and broader sector have yet to show signs of material improvement from their weak positions.
Avoiding a sector entirely is often unrealistic, so those needing exposure from weaker sectors should look towards select areas of strength within the broader group. The NDW buy list provides strong names within each major sector, including weaker areas like Real Estate or Consumer Staples. One example of an actionable name from the buy list is Welltower (WELL), which is a strong 5 for 5’er in the top decile of its sector matrix. The stock is on a string of three consecutive buy signals and is within striking distance of setting new all-time highs. WELL is trading in actionable territory relative to its 10-week trading band with support nearby starting at $150. Note that earnings are due on July 28th.
Investors willing to look outside the US might find higher relative strength Real Estate exposure from international equities given the weakness of the US dollar (DX/Y). A declining dollar boosts the value of foreign assets by making them worth more in dollar terms, which has been a tailwind for international real estate. The Vanguard Global ex-US Real Estate ETF (VNQI) holds a strong fund score of 4.45, which is 2.01 points higher than the average Real Estate fund. The fund lacks traditional support on its default chart until $38, but the more sensitive $0.25 scale seen below reveals support at $42.75 while previous resistance in the low $40s could serve as future bounce points.
