BIOTECHS LEAD HEALTHCARE HIGHER -- EQUITY OFFICE PROP HURTS REITS

REITS ARE DROPPING -- LED BY EQUITY OFFICE PROP... Since the start of the year, Real Estate Investment Trusts (REITs) have been one of the market's stongest groups. Until now. The slide in this rate-sensitive group started on Friday when bond yields surged on the strong jobs report. It's getting worse today. Chart 1 shows the AMEX Real Estate iShares (IYR) threatening to break its 50-day moving average. Downside volume is pretty heavy. The relative strength line is also dropping. This is consistent with selling in most housing-related stocks. A big reason for the drop in REIT funds today, however, is the fall in Equity Office Prop Trust shown in Chart 2. It's one of the day's biggest losers in the S&P 500. And it's trading under its 200-day moving average. EOP also happens to be the biggest holding (6%) in the Real Estate iShare ETF. REITs are the day's weakest group. The recent slide seems to be confirming the idea that this group is especially vulnerable to the prospect for higher interest rates. The day's strongest group is healthcare.

Chart 1

Chart 2

BIOTECH LEADS HEALTHCARE ISHARES... Healthcare was one of the first quarter's weakest groups. But that may be changing as well. Chart 3 shows the AMEX Healthcare iShares having recently bounced off major support at their 200-day moving average. They're now challenging the 50-day average. The relative strenth line is starting to bounce. That suggests that money is just starting to move into this overlooked group. The day's strongest gainers in the healthcare sector are biotechs. The day's strongest sector ETF is the AMEX Biotech iShares. Chart 4 shows that ETF moving up to challenge its March high after having cleared its 50-day line. Its relative strength line is also rising and is close to a new high.

Chart 3

Chart 4