Helping Self-Directed Investors Succeed Blog - Interesting REIT Divergence

Interesting REIT Divergence

October 28th, 2012

We turn our focus back on to REITS this week as we spot a very curious, interesting divergence among REIT ETFS that may be worth taking a look.

In the world of REITS, we have many classifications and major categories are US REITS, International REITS and Global REITS. Our spotlight fell this week on comparing RWR - The Dow Jones Wilshire REIT ETF and RWX - The Dow Jones Wilshire International REIT ETF.

While RWR hasn't been classified as an US REIT, when we look at the major holdings they all appear to be US property management companies. So, for our present purposes the comparison is indeed pretty valid.

RWR, from a technical perspective is down 7.35% from its recent highs and very much struggling to find support at these price levels. RWX, on the contrary appears to be poised for a breakout! Here in lies the divergence which signifies the apparent strength of international real estate.

In June 2012, REIT ETFS appear to have hit bottom and started a steady descent for nearly two months. During this time both RWR and RWX had been steadily moving higher on an even pace. Since September 2012 though their paths diverged.

RWR topped at 76.19 and started correcting in September and this past week has closed just below its long term 40-week SMA. RWX in the meantime has been trending higher, especially in the past 4 weeks. It logged a high of 40.81 in an attempted breakout above the established 40.52 high. The attempted breakout was somewhat weak and this week it closed at 40.43 but still below the 40.81 high.

So, from a technical perspective International REITS are in an uptrend while US REITS are struggling and this is indicative of the financial structural changes happening in Europe in the last few months.

US REITS, though struggling now, cannot be completely ignored especially with continued Fed Action on the stimulus side. REITS are sensitive to interest rates. Though higher inflation is increasing the possibility for a rise in rates, we don't believe this is going to happen any time soon considering the economic realities.

Good Luck and Happy Trading!

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