Real Estate Sector Leads Broad Rally

Nick Perry (Schaeffer's Investment Research) submits: While the week may have been short on trading days, it wasn't short on movers. This holiday-truncated period saw a distinct upside bias as more than 90% of my list gained ground. Digging a bit deeper into the data highlights the upside tendency as we find that three-quarters of my list gained at least 1% and more than 40% gained at least 2%. In broad strokes, bonds and oil lagged while realty funds led.

In terms of overall takeaways from the action, I think this offers a bit of minor support to what I said last week in regard to widespread gains being a good sign. As you glance over the chart below, it is clear that money flowed into most stock-based funds. Losses were limited to less than 1%and most of the ETFs losing ground were related to bonds:

Index performance this week:

Index performance year to date:

Charts: Google Finance

Two weeks ago, we saw that real estate ETFs were hardest hit as the iShares C&S Realty Majors (ICF), iShares DJ U.S. Real Estate (IYR), and Wilshire REIT Fund (RWR) all posted weekly losses near 6%. We now find a snapback bounce of roughly the same amount.

In that previous column above, we discussed how the real estate group broke below a consolidation pattern that had been in place since March 1. I noted that a rally would have to face that congestion zone and the charts for the top- and bottom-performing ETFs show that is what we are seeing now.

The ICF, IYR, and RWR are all pushing into that consolidation area and flirting with their 50-day moving averages. I think it is also worth pointing out that the bond ETFs are hitting oversold levels that have recently been associated with bounces so that is something to watch. (Note - details about the indicators used in these charts can be found at the bottom of this column.)

Top Performing ETFs
Created with SuperCharts by Omega Research

Bottom Performing ETFs
Created with SuperCharts by Omega Research

Each chart features the 50-day moving average and a 9-day relative strength index (RSI). I use the moving average (the green line) as a simple way to gauge trends and the RSI (red line below the price) suggests whether the ETF is overbought or oversold. (More information about using the RSI can be found here.)