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Review of Previous Canadian REITs Analysis at Trader’s Narrative

Let’s take a look back at my previous commentary on Canadian REITs’ oversold condition on June 27th, 2007. Yup, it is report card time!

Unlike many other trading bloggers who let previous calls drift into the ether I like to keep myself honest by reviewing past calls and analysis. Both to be transparent and to give myself and others another chance to learn (from my mistakes).

…we could be seeing a major trend change with REITs. But even so, they aren’t going to go straight down. I think this technical oversold picture in the short term is still actionable.

So how did I do?
My thesis was that it was yet another correction within a long term uptrend. I was right about an “actionable” short term oversold condition because we did see REITs bounce into July. However, the index failed to ricochet off its 200 day moving average as it had so many times before. So I was wrong in the sense of not seeing a trend shift taking place right under my nose.

Thinking back, I don’t think I did anything necessarily wrong. I prefer to be proven wrong by price action than trying to simply ‘guess’. I think it is always wiser to continue to do what has worked, until it proves you wrong. As long as you are practicing smart money management you’ll be ahead.

Weinstein’s Stage Analysis
stan weinstein secrets for profiting in bull or bear marketIf you’re not familiar with Stan Weinstein, what are you doing still reading this? Go and buy his classic book on technical analysis (on your left). Then you’ll have a great grasp of basic TA and understand what follows.

According to Weinstein, stocks follow 4 stages. From his definition, last summer the Canadian REIT sector had all the indications of Stage 3 - topping. It is now in Stage 4 - decline. Simple to see that in the chart: lower highs and lower lows.

rtre long term chart april 2008

As well, in mid-July 2007, the Canadian REIT index’s 200 day moving average plateaued. No surprise really since the index had been going downhill since late February 2007 (red arrow).

It isn’t just coincidence that since that same point in time, the Canadian REIT index has been trading consistently below its long term moving average. Something that it hasn’t done in years. This definitely denotes a major shift in REITs.

Way before they actually did, I correctly surmised that the Fed was going to have to start cutting rates. But my misstep was in not realizing that there were greater forces at play. So much so that a major campaign of tax cuts has not been able to withstand the tsunami of the credit crisis.

On a positive note, the index seems to have found footing recently along with the rest of the market, lifting off from a double bottom formation. If it continues to rise, its next challenge will be meeting the long term moving average from below as it is hurtling down towards it.

I find myself unable to resist the temptation of picking up some Charter REIT (CRH.un); a tiny real estate investment trust that has a 15% yield. Other than that I’m just going to hang on to my long term holdings.

Lesson learned:
When Sam Zell sells, real estate has peaked.

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10 Responses to “Review of Previous Canadian REITs Analysis”  

  1. 1 PhilC

    What made you click for CRH? The 15% payout is interesting, but most of their malls are 100% rented. A slowdown would certainly cripple their occupation rate and in turn lower the payout, no matter how low the fed cuts rates.

  2. 2 Babak

    Phil, this is the first time I’ve seen a high occupancy rate held against a REIT! I’m not sure I follow your logic. Granted, they are tiny, but if they can fill all their potential space in such a challenging market, what is wrong with that exactly?

  3. 3 PhilC

    You are right 100% is a good thing. I’m just worried about reversion to the mean.
    So… What made you click for CRH?

  4. 4 Babak

    well, the share price has definitely reverted to the mean. That is it now at a long term support and that the yield is so juicy and that it is a small REIT with potential for growth, all of these made me take a punt.

  5. 5 Iris Shaw

    What is the symbol of the Canadian Reit?


  6. 6 Truth

    Central planning doesn’t work. You should know that! Market is setting up a top in here.

  7. 7 Babak

    Iris, you mean Charter REIT? it is in the post: CRH.un

    Truth, what are you talking about comrade? glorious market for benefit of all!

  8. 8 Whasit

    CRH.UN is a steal. It pays out 15% over the course of a year in distributions but the unit price drops by 50%!

    Some math there my friend!

  9. 9 PhilC

    Distribution was just cut in half. It’s 8% now. Still pretty good.

  10. 10 Babak

    PhilC, slightly less than half actually - but the price hasn’t budged!

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