Trader’s Narrative

Last Monday (May 21st, 2007) I wrote about the deep oversold condition in the US REIT sector and why I thought that it was a bear trap.

So far, according to the CBOE Dow Jones REIT Index (DJR), things have played out according to that script. After reaching just below the 200 moving day average and giving the bears a glimmer of hope, the index reversed up. It formed a beautiful W bottom (double bottom) and after yesterday’s showing it is now once again above its long term moving average.

The snap back provided some really nice wide range days as the shorts scrambled to cover and ended up throwing more momentum behind the uptrend. I’ll show yesterday’s graphs for two REITs which I mentioned in my original post last week.

Here is the intraday chart for Kimco Realty Corp. (KIM):

And here is Vornado Realty Trust (VNO):

Nothing ever goes straight up, or down. While short term, nimble traders can take advantage of shap snapbacks like this one, don’t expect the sector to keep going up day after day.

The REIT sector should consolidate its recent gains and start climbing back up slowly. If you want a good entry for long term holdings, here it is.