A bounce in a real estate bear market
Hey all,
I entered a large-sized short on XLRE this morning, likely with an outlook of 2ish months. I believe XLRE either made a top this morning or is due to put in a significant top very soon. There are many reasons why I decided to do this, and I'll get into that-
Firstly, real estate is fundamentally very ugly right now; with 30Y mortgages at 6.58% interest (MORTGAGE30US), and 3 consecutive months of declining home prices(Last occurred in the 2008/9 recession, I believe), there is very little reason to be bullish on real estate here, at least fundamentally. Moreover, with interest rates that are still rising, and are likely to stay high for an extended period of time in the FED's fight against inflation, there is very little reason to believe that mortgage interest rates will fall; this will make homebuying particularly unattractive, especially paired with the still relatively high home prices. The issues with real estate are likely to get worse before they improve- at least to my estimation.
Now that my fundamental case is there, Let's dive into the technicals. One thing that stands out about XLRE to me is how it seems to make the same rejection pattern every time it puts in a local top; I have it drawn out to recognize this pattern. It has currently repeated this pattern- where it consolidates, explodes upwards, then proceeds to reject & explode to the downside. Right now, XLRE is in a downtrend- and is in a larger-term trend that very much appears dome-like. To me, this suggests a loss of momentum, and, considering it is still in a downtrend, I believe the correct way to approach this name is to bet with the trend. I believe XLRE will make new lows, and my money is where my mouth is on this one. I am certainly open to any opposing opinions and look forward to what you guys have to say!
I entered a large-sized short on XLRE this morning, likely with an outlook of 2ish months. I believe XLRE either made a top this morning or is due to put in a significant top very soon. There are many reasons why I decided to do this, and I'll get into that-
Firstly, real estate is fundamentally very ugly right now; with 30Y mortgages at 6.58% interest (MORTGAGE30US), and 3 consecutive months of declining home prices(Last occurred in the 2008/9 recession, I believe), there is very little reason to be bullish on real estate here, at least fundamentally. Moreover, with interest rates that are still rising, and are likely to stay high for an extended period of time in the FED's fight against inflation, there is very little reason to believe that mortgage interest rates will fall; this will make homebuying particularly unattractive, especially paired with the still relatively high home prices. The issues with real estate are likely to get worse before they improve- at least to my estimation.
Now that my fundamental case is there, Let's dive into the technicals. One thing that stands out about XLRE to me is how it seems to make the same rejection pattern every time it puts in a local top; I have it drawn out to recognize this pattern. It has currently repeated this pattern- where it consolidates, explodes upwards, then proceeds to reject & explode to the downside. Right now, XLRE is in a downtrend- and is in a larger-term trend that very much appears dome-like. To me, this suggests a loss of momentum, and, considering it is still in a downtrend, I believe the correct way to approach this name is to bet with the trend. I believe XLRE will make new lows, and my money is where my mouth is on this one. I am certainly open to any opposing opinions and look forward to what you guys have to say!