Mortgage REITs are double-digit dividend yielding equities that are generally regarded as risk-off investments. Given their fat dividend yield, these REITs tend to hold up quite well when the market undergoes corrections or rough times.
For this exercise I like to focus on NLY, one of the largest mortgage REIT stocks. When the relative price chart for NLY is beginning to look bullish and turning
up, 1) it’s time to buy the mortgage REITs, but more so 2) the stock market is
likely headed for a correction (risk-off). And vice-versa, when relative price
chart of NLY is looking bearish, sell the mortgage REITs and get long the
market (risk-on).
Here is the weekly NLY relative price chart:
Source: Stockcharts.com
I use the MACD for buy & sell signals. A buy signal was recently triggered on February 21.
Here are results for the last six MACD signals (using total
return):
As already mentioned, two things to notice: 1) SELL signals
have NLY underperforming by double-digits, and 2) SELL signals have the S&P
500 performing quite well. Again, SELL signals mean it’s time to get out of NLY
(risk-off) and go long the market (risk-on). Granted, it’s a small sample set,
but through 2/21/2013 the S&P 500 is up 18% on average for SELL signals
and -5.5% for BUY signals.
Since the most recent BUY signal on February 21, NLY has
outperformed the S&P 500 by 3.9%. Although the market is up in that
time, we’ll see if this remains the case over the next several days/weeks.
Mortgage REITS do not exist in a vacuum. The political environment surrounding them has changed considerably in the past year. There is good reason to doubt they will behave in the future the same way they did in the past.
ReplyDeleteFor this exercise I like to focus on NLY, one of the largest mortgage REIT stocks. When the relative price chart for NLY is beginning to look bullish. Marijuana Rehab
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