Europe REITs Consolidating

After finishing 2017 with a breakout run from a 4-month-long consolidation channel to new multi-year highs, the iShares European Property Yield ETF (IPRP) is digesting the new highs in a possible head and shoulders pattern:

Source: Bloomberg

If price breaks below the green line (so-called neckline of the pattern), then we might see a drop to the 39 handle, as the measurement rule uses the distance from the neckline to the high of the head as the sum to be subtracted from the neckline. This target area falls right to an up-sloping trendline acting as support for now.

Remember that a head-and-shoulders pattern is validated only by the price crossing the neckline decisively.

 

Disclosure: We don’t have any positions in IPRP.

 

Retail Default Levels Above Recession Levels in 2017

This chart from Moody’s is showing that one in five retail and apparel issuers was in default at the end of 2017:

Source: Record Number Of Retail Closures In 2017

However, this is only a reflection of the past, the worst may be behind us:

“we think 2018 is looking brighter across numerous sectors, with even department stores — one of the worst performers in 2018 — considerably paring losses.”

Source: Record Number Of Retail Closures In 2017

This is a chart of a retail ETF that tells the whole story. Now it is at a make-or-break point after a 2 and a half year decline:

Source: Bloomberg

 

End of Year 2017

At the end of the year 2017 this two made me think hard about potential opportunities in real estate:

 

A Barron’s article about opportunities in retail REITs:

Shopping for REITs -The hard-hit sector looks ahead to a brighter 2018.

An awesome podcast by Patrick O’Shaughnessy’s Invest Like The Best on liquid real estate investing:

Retail Contrarians, with Sorin Capital’s Jim Higgins and Tom Digan [Invest Like the Best Ep. 68]

They made me dig up this chart from Bloomberg:

Source: Bloomberg

Maybe it is the end of the retail apocalypse? Or just a year-end short covering rally?

We’ll see it next year how this story will unfold, but the above chart of Bloomberg’s Regional Mall index is telling you that:

  • The recent downtrend has probably turned,
  • The low was made on a burst of volume,
  • Which might signal a selling climax.

This is all for now, happy new year to everyone!

 

Disclosure: We are long US REITs through VNQ and IYR.