Signs of bearish reversal for XLRE
I observed last year that XLP and XLRE could be leading bear sectors in the US stock market. XLP reversed it’s bearish setup and went on to print a new 52-week high this week. XLRE broke down however and confirmed my suspicion that it was printing a distribution pattern.
Note these features
- The 4-line moving averages roadmap is made up of 13-week ema, 26-week ema, 52-week and 104-week ema. Between Q2 – Q4 last year, we see XLRE price action reacting to and complying nicely with 52-week ema so we know it is a good roadmap.
- This year the opposite is happening. XLRE has fallen below the roadmap and instead of acting as support, we see the 52-week ema become resistance last week.
- The shorter 13-week ema and 26-week ema made a dead cross which indicates a bearish reversal.
- XLRE expanded below Q4 low. This bearish expansion terminates last four quarters’ sequence of higher-highs and higher-lows. With this termination, we may be looking at the start of a bear trend for this ETF or at best sideway movement. This signal reinforces the observation we make based on moving averages.
- Parallel lines define a channel in existence since late-2016. This channel is clearly broken on the downside. There may be some pullback. Unless XLRE does a ‘regret’ by popping back inside this channel, it could be operating on a lower level for 2018.