This real estate stock is setting up for a move higher despite the rise in interest rates, charts show
Every day, I go through hundreds of stocks to uncover trading and investing ideas for our clients. Some of that process comes through preset technical screens, while some of it is simply manually paging through charts one by one At times, this can be even more telling than having a program spit out names based solely on criteria. In many ways, using both approaches together is the most valuable process. The biggest confirmation comes when the same names surface through both methods. In other words, I already know the types of patterns that tend to look attractive simply by identifying them visually on a chart. Sometimes those names may not check every box from a technical standpoint, but when they also appear on the preset screens built to identify the exact criteria conducive to breakouts or sustained moves, it gives me a higher level of conviction in using them as trade ideas. Going through this exercise recently, I noticed something interesting: a meaningful number of stocks showing attractive chart patterns stemmed from the real estate sector. What makes that notable, of course, is the backdrop. With the 10-year Treasury yield recently hitting its highest level since early last year near 4.7%, real estate would probably be the last place most investors would think to look for constructive setups. That is exactly why this type of exercise helps eliminate bias. Sometimes, focusing on price action alone gives insight we otherwise may not have considered. This can be viewed in two ways: Bigger Picture Perspective: What does it tell us about traders and investors if they continue buying real estate stocks while rates are moving sharply higher? Perhaps the market is discounting something ahead of time, or maybe investors are seeing value despite the rate backdrop. Technical Perspective: Price action should remain the primary focus. As a market technician, my job is to objectively interpret what the market is telling us rather than become overly influenced by outside narratives. That does not mean ignoring the macro backdrop — it simply means allowing price to lead the conclusion. As my first boss, Alan Shaw, used to say: “In price there is knowledge.” The idea is simple: we may not always know what is happening beneath the surface, but price action often gives clues before the story becomes obvious. Looking at rates more broadly, the 10-year yield is indeed at its highest level in quite some time, and inflationary pressures remain evident across many commodity groups. The bigger question, however, is how much further can yields rise in the short term without at least some type of pullback? In particular, it is worth remembering that the 10-year yield is only marginally higher on a net basis since late 2022. Yes, rates may ultimately move higher over the longer term, but there can still be meaningful swings and plenty of volatility in between. We have seen exactly that over the last four years, with trends lasting multiple months before reversing course several times. One real estate stock that we recently highlighted for clients is Welltower . The stock is attempting to break out, and if successful, the upside target would be near 239. Again, while that may not seem dramatically higher from current levels, the bigger takeaway is the broader basing formation attempting to resolve higher despite rising interest rates. There are others as well. As of this morning, 14 real estate stocks in the S & P 500 were trading within 3% of their 20-day highs. I find that metric more telling than new 52-week highs when trying to identify recent strength. It highlights names quietly holding near their best levels even if they have not yet pushed into fresh breakout territory. —Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
