OIL DROPS SOME MORE -- REITS HAVE STRONG DAY
SHORT-TERM TOP IN PLACE... The price of oil continues to drop. Last Friday I showed the 14-day RSI at the most overbought level (over 70) in three months and starting to weaken. Chart 1 plots the 14-day stochastic lines which have turned down from overbought territory over 80. What may be more significant is the fact that the daily MACD lines have now turned negative. I also suggested last week that the first line of support for crude would be its 20-day average near 45. It's reached that level. If it doesn't hold, the next support level would be its 50-day average -- and lower Bollinger Band -- neara 42. Not surprisingly, energy stocks continue to experience profit-taking. (See Chart 2).
Chart 1
Chart 2
REITS HAVE A STRONG DAY ... Interest rate sensitive stocks continue to show relative strength. This is especially true of REITS (Real estate investment trusts). Last Friday's Market Message showed the Morgan Stanley REIT Index hitting a new four-month high. Today's price gain puts that index right up against its early April peak (see box) and on the verge of a new record high. Its relative strength line is breaking out as well.
Chart 3
EQUITY RESIDENTIAL HITS NEW RECORD... Three of the five top financial performers today were REITS. The standout was Equity Residential Properties which broke out to a new record high on the heaviest volume in more than three months. Equity Office Properties also rose on volume and exceeded its 200-day average for the first time in four months. Simon Properties climbed to a new four-month high on rising volume. That's good chart action in all three REIT leaders.
Chart 4
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ANOTHER MIXED DAY ... On Monday, the Dow sold off a little while the Nasdaq bounced. Today the order was reversed. The Dow gained a little, while the Nasdaq lost ground. Trendwise, nothing of significance has changed in the first two trading days of the new week. Chart 7 shows the Dow moving closer to its (blue) 50-day moving average and initial chart resistance at 10,200. The Dow would have to clear the latter number to turn its trend higher. The Nasdaq remains beneath its May low at 1878. Today's semiconductor-led dip saw a slight pickup in volume. Its first real chart barrier -- near 1900 -- is still a long ways off. Historically, REITs have shown a tendency to have a negative correlation with the technology sector. Today's upside breakout in the REITs may be a sign that the market still isn't too optimistic on the Nasdaq market. Falling oil prices may also be giving a boost to the rate-sensitive REITS.
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Chart 8
