The listed property trust sector was hit hard during the financial crisis but began a sustained recovery from April 2011, with the property index (XPJ) making higher highs and lows until its peak in May, shown by this chart produced by Robert Brain, a director of Australian Technical Analysts Association.
Since its May highs, the index has fallen to February levels, then bounced a little off about 1000. The question for investors is where to from here.
As Brain observes, a "head-and-shoulders" pattern looks to have formed on the chart, to be substantiated if the index continues its decline from the bounce following the June fall, completing the "right shoulder". This would be a signal the market is likely to make a strong move up or down as buyers or sellers win out in the market.
Most of the 15 stocks in the index have charts similar to it and are retesting support levels. A few, including Charter Hall and Commonwealth, have fallen through support levels on weekly charts, a possible sign of further weakness. Conversely, some are trading above support and a couple, including Westfield Group, are testing supports.
The upper chart also includes the 15-week and 30-week moving average lines, which trended upwards until the June peak, when they turned and the index fell below both indicators. Should the present downturn see the index fall through the 30-week moving average again, it would be a bearish signal.
The lower panel shows the MACD (moving average convergence-divergence) line and its dotted signal line. This trend indicator represents the difference between the 12-week and 26-week moving averages. (The signal line is the MACD's moving average, thus a bellwether for its movements.)
In April 2011 the MACD rose from its lows while below its zero-level midpoint, indicating an oversold market. We can see the signal was accurate at that time. The MACD gave us another important indicator in May, when it fell through the signal line and both began to fall. That was an accurate indicator of weakness, and while both lines continue to fall, it might be wise not to seek exposure to the index.
This column is not investment advice. firstname.lastname@example.org