This article is for education purposes only, and not to be taken as advice to buy/sell. Please do your own due diligence before committing to any trade/investment.
Real Estate Investment Trusts (REITs) have taken a beating ever since the Fed announced its intention to raise interest rates.
This is because REITs are often heavily leveraged. As a result, higher interest rates erodes their profitability, which causes their share price to get slammed.
And as the prices of REITs slide, there could be short position trading opportunities.
Let’s find out more about Equity Residential before determining if there’s a short position trading opportunity.
Brief History of Equity Residential
Equity Residential was founded back in 1969.
A couple of years after its founding, the real estate market collapsed. However, Equity Residential was well positioned to capitalize on it, snapping up apartment buildings in fast-growing cities.
This aggressive property acquisition behavior continued and became a signature of the REIT.
Has this aggressive culture produced outsized returns?
Let’s find out in the next section!
Business Model and Financials
Looking at the income statement of Equity Residential above, you can tell that its total revenue has been pretty stagnant over the years.
Is it premature to evaluate that Equity Residential’s financial health isn’t as strong?
Diving into its net income will provide more clues.
Its net income in 2015 came in at $870m. This exploded in 2016, reaching almost $4.3b! That’s a mind boggling 393% increase from 2015!
Sadly, that supernormal performance was an outlier and its net income reversed to around $600m in 2017 and 2018.
From thereon, its net income has experienced growth to $970m in 2019 and has held steady.
Rents in developed nations shot up due to COVID-19 and have not fully eased.
Given the stagnant total revenue and net income in recent years, it’s a worrying sign.
Does the weakness in its financial report mean that you should short its shares now?
Technical Analysis on Equity Residential (NYSE: EQR)
Can you tell if the trend of Equity Residential’s shares is up or down?
Yes, it’s in a downtrend.
You can tell by looking at the direction its price has been heading in the past months, through the color of the majority of its candles (body and outline), and the sheer number of down pointing arrows.
Did you also notice that there’s a red arrow above its latest candle?
That red arrows indicates a new downtrend has been formed.
Before you rush to short-sell the shares of Equity Residential, there’s another indicator you’ll need to watch – the Trend Impulse Factor indicator.
More accurately, you’ll want to see the bar of the Trend Impulse Factor indicator turn dark green in color. A dark green bar indicates the possibility of continued momentum, which will be helpful as money is only made when there’s a sustained price movement.
Therefore, I think that the share price of Equity Residential may not get slammed further anytime soon; its shares isn’t ripe for a short position trade yet.
REITs have been getting hammered due to the soaring interest rates to combat inflation.
As the Fed has announced further rate hikes in 2023, I don’t think REITs will suddenly turn bullish or recover anytime soon.
The share price of Equity Residential has been in a steady downtrend and this doesn’t look like it’s going to stop soon.
However, I don’t think that you should short its shares because the tried-and-tested indicators aren’t suggesting that you should short its shares.
Trading stocks without a proper system can be highly risky. This is why the TradersGPS (TGPS) was created.
The indicators (red and green arrows and Trend Impulse Factor) will help you determine if a stock is ready for action to be taken. You won’t have to feel in the dark and make wild guesses.
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