The U.S.-China trade meetings are the talk of the town today. President Trump has expressed a “take it or leave it” attitude, while China feels that a partial trade deal is certainly possible.
And though most of the market is caught up in headlines, which over the last 24-hours have often contradicted one another, there’s still plenty of trading opportunities simmering beneath the surface.
Many of which aren’t even (directly) affected by trade negotiations.
Take, for example, real estate investment trusts (REITs), which own (and in most cases operate) income-producing real estate. In 2019, REITs have outperformed the general market. The First Trust S&P REIT Index Fund (NYSE: FRI) is up over 22% on the year, while the S&P 500 has risen roughly 17% by comparison.
Some REITs, however, haven’t fared quite as well.
Colony Capital Inc. (NYSE: CLNY), a REIT focused on diversified investing, is up about 17% since January 1st (compared to the industry’s 22% average) after dropping a whopping 58% in 2018.
CLNY shares have risen over the course of the year – albeit not as much as the company’s peers – zigzagging back and forth the whole time. The stock went on an absolute tear from late August to September 30th, blasting off to an impressive 38% gain.
And now, after peaking last month, share prices are coming back down to earth – setting up not only a correction, but a promising opportunity to go short.
In the weekly candlestick chart above, you can see the massive price swings that have taken place since mid-July. CLNY hit the Bollinger Bands (BBs) three times in a little under two-and-a-half months, creating some major indecision among shareholders.
The past two “big moves” – one in July, the other, August-September – were untradeable. In terms of weekly candlesticks, they simply happened too fast.
But now, thanks to the formation of a double top and slightly slower price action, CLNY has given short-term traders a chance to go short before the bottom falls out of the stock.
In addition to contact with the upper BB, the stochastics sit at a high level, indicating that CLNY is overbought despite the selling of the last two weeks.
The current weekly candlestick is trading below the last three, and the 50-week moving average is sloping downwards (slightly). Should CLNY drop below the current week’s low (as of Friday, when the candlestick closes), it might make sense to go short via a trade trigger at $5.43
Best of all? Even if the U.S. and China agree to a trade war ceasefire, CLNY could still get hammered by bears.
Because if there’s anything we’ve learned from REITs this last year, it’s that they tend to “do their own thing”, independent of the day’s prevailing headlines.
