Chart of the Week: Real Estate Trouble Looming?

In case you’ve been living under a rock, we have a bit of a banking problem going on with our smaller, regional banks. 

Those are the banks that own about 80% of the Commercial Real Estate (CRE) loans in the US. Much of that CRE is going to have to be refinanced this year, next year, and in years to follow. 

The current interest rate environment isn’t friendly for refinancing big chunks of money. You know as well as I, it’s going to be WAY more expensive, in a time when people want to work from home… leading to less demand. Higher prices and lower demand creates our perfect storm.

Now you could short all sorts of regional banks or go to an ETF like SPDR S&P Regional Banking ETF (KRE) and buy some puts, but I think a smarter play is to go after a REIT (Real Estate Investment Trust) that specializes in CRE. And why not go for one of the biggest out there…

Alexandria Real Estate Equities, Inc. (ARE)

As we can see on the chart, ARE is already in a significant downtrend and the opportunity may not be immediately obvious. So, let me add a few Fibonacci (Fib) lines to the chart…

With the addition of the Fib lines, we can see the potential setup for ARE to extend down to the target zone at $100… though it might take well into the summer months to get there.  

I have a put-based position using the December 2023 expiration – looking for ARE to drop to that $100 level or possibly lower. The entry is good below $128. 

If ARE breaks above $128, then price is telling us a move higher is more likely than dropping quickly to the target.

Hope you found that helpful, and if you want to learn a little more about using Fibonacci levels check out my class: http://jeffrytrader.com/fib 

Have a great rest of the week!

Jeffry