Recession Watch III: Real Estate

TL:DR Upward momentum to the real estate market is coming to an end with ETFs, REIT, and REIT ETFs in the US and EU showing topping behavior and China showing a continuation of downtrend. The assumption is holding flat or even reducing interest rates won’t work if people debt and willingness to borrow/loan is already maxed out. Moving averages, Divergences, Volume Profile and Fib retracements point to financial crisis.

The first two ideas in this series looked at gold (GOLD) and oil (WTI and BCOUSD) and those articles were making the case that an increase in those tickers show an indecision in broader market and a desire for physical and incorruptible assets (gold) and that an increase in what is for many a fixed/inelastic/necessary expense (oil) are going to take up a lot of disposable income and lead to further contractions.

This idea is going to look at real estate broadly. The main chart shows that the ETFs for the United States and Europe (VNQ and IFEU) as well the REIT ETF (RWR) have behaved the same with regards to the perfect bull trap play off of the100 MA. moving averages in December and January. The uptrend on for IFEU shows the European market didn’t inflate nearly as much as the United States market as both VNQ and RWR set new highs compared to the 2008 highs and had previously touched the 200M MA. The orange arrow on VNQ and the red arrow on RWR point out either a bearish cross has happened or is near on the 20&50 timeframes. Price action popped above the MAs but I expect they will soon come down.

DJ:REIT has been on an absolute tear since the 08 crash and has only tested the 50M MA. The most concerning thing about this chart is they stopped tracing volume in 2013 so it is not possible to throw on a volume profile and see how much volume is actually holding up this uptrend. But clearly we nee to look at DJ:REIT by itself and we can cluster the others.

The chart below shows that VNQ, IFEU and RWR all had classic bearish divergence on the monthly timeframe shown with blue lines, and all have MACDS that are around zero.
The chart below with orange lines shows that from the peak in 08 to the peak in 2018 we have classic bearish divergence on VNQ and RWR on the monthly timeframe(IFEU lacks the history and so it isn’t included). Between the relatively short term divergence in blue and the longer term divergences in orange we should expect the downtrend to continue. What does that mean specifically? I think it means we should be seeing something more clearly definable as a low and we don’t see that now. The short term bearish divergence means we should be looking for some type of topping behavior, especially from VNQ or RWR( It doesn’t take to much looking to see something resembling a head and shoulders with a double right shoulder).
The chart below is a bit of fun with RWR, having the longest history. On the left we see the clear bearish divergence, this time on the 3M timeframe which looks really bad, and off to the right be see the beginnings of a 6m MACD about to have a bearish cross.
A look at the VPVR and fib retracements shows that RWR found support on the 0.236 retracement level when it bounced off the 100w MA. The low volume node below suggests a dip to at least the 0.382 retracement level Sometimes the Fib rations match up nicely with nodes but that is not the case on this view. I suspect the dip will be deeper.
The volume profile of the uptrend more closely matches the fib ratios an shows almost ever ratio is in play. We are trading around the largest high volume node and the next highest is down at $33 and I see it in play.
For the sake of completeness here is the VPVR of the uptrend for VNQ and IFEU. They have less volume holding up their uptrends than RWR
DJ:REIT has bearish divergence on the daily timeframe in blue and and on the 3M timeframe off to the right. Once again I expect a reversal structure to play itself out such as a head and shoulder. The black lines suggest we hit a technical double top as a form of suble bearish hidden bearish divergence. The MACD for the 1d and 3m timeframes look the same, bearish cross with an attempt by the bulls to reverse the downtrend.
Finally a look at the young ETF for the China housing industry, FLCH. The blue lines show hidden bearish divergence which predicts a continuation of the downtrend and the rising wedge also predict a downtrend, with the dashed lines showing the height of the base of the wedge and target.