2 Real Estate Names That Could Enjoy a Santa Claus Rally

Despite expectations for a rate hike, IYR and VTR could jump in December, if history repeats

Nov 29, 2017 at 3:03 PM
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The Fed is widely expected to raise interest rates at its December meeting, especially in the light of favorable economic data. While conventional wisdom indicates real estate stocks suffer in the face of rising rates, recent history suggests some equities in the sector could enjoy a Santa Claus rally. Below, we'll take a look at the iShares U.S. Real Estate ETF (IYR) and healthcare real estate investment trust (REIT) Ventas, Inc. (NYSE:VTR), and why traders should keep an eye on IYR and VTR stock in the near term.

IYR Popped Last December

The IYR exchange-traded fund (ETF) has averaged a healthy December gain of 2.21% over the past 10 years, according to Schaeffer's Senior Quantitative Analyst Rocky White -- among the best of all ETFs that we track. Plus, the fund has ended the month higher 60% of the time, and rallied roughly 2.8% last December, despite the Fed hiking rates.

IYR shares have been in a channel of higher lows and highs since their late 2016 bottom, muscling about 8% higher in the last year, with pullbacks contained by their 80-week moving average. The ETF was last seen 0.2% lower at $81.86, and just touched an annual high of $83 earlier this month. Another 2.21% rally from current levels would put IYR around $83.67 -- deeper into new-high territory, and within striking distance of 2016's all-time highs.

IYR etf chart

A short squeeze could also help IYR higher, should these bears abandon ship. Short interest surged nearly 20% in the last reporting period, and now represents about a week's worth of pent-up buying demand, at the ETF's average daily trading volume.

This REIT Has a 100% December Win Rate

REIT Ventas, meanwhile, is one of only two S&P 500 Index (SPX) members that have ended December higher 100% of the time over the past 10 years, and just one of several real estate stocks on the Best of December list. Further, VTR stock has averaged an impressive monthly gain of 7.06% -- among the best of all SPX securities.

The security has been in a channel of higher lows since the 2009 bottom, with help from its ascending 50- and 80-month moving averages, but has struggled to overtake the $68-$72 area, which has contained most rally attempts over the past four years. At last check, VTR shares were up 0.6% at $63.99, and another 7.06% surge in December would place the stock around $68.50 -- back in that same area.

VTR stock chart

As with IYR, Ventas stock could enjoy a short squeeze, should the equity rally again next month. Short interest jumped 13.8% during the most recent reporting period, and would take about a week to buy back, at the security's average pace of trading.

Plus, while absolute volume tends to run light, options traders are extremely put-skewed. During the past two weeks on the  International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), VTR has racked up a 10-day put/call volume ratio of 8.09 -- an annual high. An exodus of option bears could also propel VTR higher.


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