Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. For more go to Stocktrends.ca
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The Stock
Brookfield Properties Corp.
Yesterday's closing price
$13.75
The Trend
The first chapter of this year's stock market story has tested the bullish sentiment of equity investors, but one asset class has shaken the anxious mood: real estate. Accommodating monetary conditions have helped to lift housing prices, giving Canadians welcome relief in a critical segment of their balance sheet. And commercial real estate is shining, too. Real estate stocks are now down only 2 per cent since the broad market high a month ago, a period in which the S&P/TSX composite index dropped by as much as 9 per cent.
The sector's relative price performance helped fuel trading in the iShares Canadian Real Estate Investment Trust Index Fund earlier this month, a sign of growing confidence in commercial real estate income streams. Although taking a step back last week after a string of eight weeks hitting new highs, the exchange-traded fund remains in a strong bullish trend. While over 20 per cent of TSX stocks have drifted into a Stock Trends Weak Bullish category (indicating the share price has dropped below the 13-week moving average trend line), the real estate sector has managed to keep its footing and remains above trend.
The Trade
Brookfield Properties is a subsidiary of Brookfield Asset Management Inc. and stands as a prominent commercial real estate stock - its many properties include premier downtown office spaces across North America. This recovering stock rose out of the ashes of the financial crisis last summer when it rallied to the $12 level, but until mid-December it really struggled to get past resistance near $12.50.
The advance through a resistance level - a price where sellers are in enough supply to keep a cap on a rallying stock - often denotes a new area of support for a stock. What was a price resistance level then becomes a new price support level - a price where new buyers step up to the plate. That $12.50 share price - which also marked the 13-week moving average trend line - delivered support at the end of January and the stock subsequently advanced again to a new high of $13.75 on strong trading volume. This positive technical move gives investors who are bullish on the economy a sign that this real estate stock is still in a good trend position.
The Upside
The real estate sector's recent relative price performance is the primary reason for this trade. Brookfield Properties' share price may not immediately advance through its current high in the context of a struggling stock market, but investors should capitalize on the trend-line support that will help edge the stock forward - perhaps a better outcome than current high-risk trades in commodity sectors.
The Downside
Without a doubt, Brookfield Properties' long-term share price performance will depend on the course of economic recovery in key markets across North America. The approach of Stock Trends to all trades, however, is the same: Sell if the stock drops below key support levels. Not coincidentally, an 8- to 10-per-cent drop in the share price below $12.50 turns this stock Weak Bullish and would signal an exit.
Skot Kortje