IYR is strongly outperforming SPX
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Bernie Schaeffer Schaeffers Research.com |
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My colleague, Ryan Detrick, emailed me a MarketWatch story from Feb. 17 entitled "The worst is yet to come - what to expect from the commercial real estate crisis." Ryan's choice comment was, "Nothing new. Hands down, still the most hated sector." And he's right. According to our latest compilation of data from Zacks Investment Research, the real estate sector has the lowest percentage of analyst "buys" (32%) and the highest percentage of "sells" (11%) of the 50 or so sectors we track.
And it was with this extremely negative analyst backdrop in mind that I just took another look at what has been a favorite exchange-traded fund (ETF) of mine over the past six months - iShares Dow Jones US Real Estate (IYR). The first thing I'd note is that IYR has outperformed the S&P 500 Index (SPX) by more than 25% since March 2009. It always grabs my attention when a stock or a sector that is strongly outperforming the SPX is despised by the analyst community, as this means that the favorable price action has been accomplished with little or no analyst support and that further gains could be fueled by analyst upgrades as they begin to capitulate.
Speaking of price action, IYR has been in solidly bullish mode since it broke out above its 200-day moving average in July 2009 (see Chart 1). Of particular interest to me is the all-time high at $95 set in February 2007 (not shown on this chart). Stocks that decline sharply from their peaks often have difficulty on the way back up at a level equal to half the former high – in this case at $47.50 – and it's no shock to me that IYR's highest close on its rally off the March 2009 bottom has been at $47.43 (on Dec. 28, 2009). While this "half-high" still represents an overhead resistance "speed bump," IYR's upside could be pretty spectacular if it's taken out, as there appears to be little overhead resistance until $55-60.
Chart 2 (courtesy of our quotes page) shows that short interest on IYR has climbed steadily, often an indicator of a negative sentiment backdrop. While these big short positions could represent hedges to long positions in the individual stocks comprising this ETF, I find it interesting that short interest on IYR has steadily grown for many years beyond the period shown on the chart.
Finally, I'd note per Chart 3 (from our quotes and tools section) that the implied volatility on IYR options is near its lowest levels of the past six months. With implied volatilities now at about 25%, IYR becomes a very interesting "married put trade." You buy the shares, but simultaneously buy an out-of-the-money put for protection. If the contrarian bullish view proves to be correct (as I believe it will), you stand to make some very nice profits from owning the shares. But if the legions of analysts and media doom and gloomers happen to have it right this time, your put will sharply limit your loss potential for a very reasonable initial cost.
Bernie Schaeffer:
• Developed Expectational Analysis®, a proprietary, three-tiered method of options analysis combining technical and fundamental studies with the analysis of investor sentiment.
Publisher
• In 1981, Bernie launched the newsletter, Bernie Schaeffer’s Option Advisor. Serving as senior editor since inception, Bernie has led the Option Advisor to become the nation’s leading options newsletter. Features: market commentary, specific trade recommendations, and trading strategy.
• Launched SchaeffersResearch.com, in 1997. A four-time winner of Forbes “Best of the Web” award, the website has also received positive mention in Barron’s, AAII and The Wall Street Journal Guide to Online Investing - “An independent options site that is one of the best for providing primers for both novice and advanced investors.” Features tools, quotes, data, commentary, and education.
• 10 Days to Successful Options TradingSM – This multi-media home study program teaches options basics. Learn fundamental strategies with hands-on application exercises and examples.
Author
• The Option Advisor: Wealth-Building Techniques Using Equity and Index Options (1997)
• New Thinking in Technical Analysis: Trading Models from the Masters – The industry has viewed Bernie’s Expectational Analysis® methodology as a groundbreaking approach to trading. Proof of this came with the publication of this new book by Bloomberg Press. One of twelve authors, Bernie was honored to be chosen from hundreds of market analysts to explain his methodology.
• Writes a monthly options column for Bloomberg Personal Finance magazine.
• Multexinvestor.com regularly calls on Bernie to contribute to their “Analyst Corner.”
Awards and Recognition
• Three time winner of The Wall Street Journal stock picking contest.
• Ranks fifth among market timers tracked by Timer Digest for the past decade.
• Dick Davis Hall of Fame inductee for his bearish posture ahead of the 1987 crash.
• He is known for successfully maintaining a bullish market posture throughout the 1990s.
• The Market Technician’s Association (MTA) awarded Bernie “Best of the Best” in 1997 in the field of Sentiment/Psychological Analysis.
• Bernie is regularly featured on investment chats on Yahoo! Finance.
• Bernie’s views on the stock market and the economy are regularly quoted in The Wall Street Journal, The New York Times, BusinessWeek, Investor’s Business Daily, and USA Today.
• Both Barron’s and The New York Times have featured Bernie in “Question & Answer” interviews.
• Recognized as a CNBC “Market Maven.”
• Appears regularly on national financial broadcasts such as CNBC, CNN, Bloomberg Television, the Nightly Business Report, Wall Street Week with Fortune and Fox News. Also serves as a guest host on CNNfn.
• Frequently invited to speak at national investment conferences and seminars.
• Regularly sits on Options Industry Council panels around the country.
• One of 50 market strategists appearing in BusinessWeek’s 2001 market forecast.