There are encouraging signs that the current stock market rally could extend to year end, namely breadth and stabilization.
Stocks with positive momentum are from a wide variety of sectors. In other words, there is breadth.
Strength is broad based and not isolated to a select few sectors. Furthermore, many interest-sensitive securities, such as real estate investment trusts and utility stocks, which have been under recent pressure are finally seeing their prices stabilize. An area of continued weakness is precious metals.
Highlighted in this issue of the TSX Crosses report is Killam Apartment Real Estate Investment Trust (KMP.UN-T). The units recently displayed a "death cross".
A "death cross" is a potentially bearish signal for a stock that occurs when a shorter-term moving average, such as the 50-day moving average, crosses below a longer-term moving average, like the 200-day moving average. When this occurs, it marks a potential negative signal, confirming the downtrend in the price action may have traction.
The opposite scenario is a bullish technical signal called a "golden cross". A "golden cross" occurs when a short-term moving average, such as the 50-day moving average, crosses above a longer-term moving average, such as the 200-day moving average. When this occurs, it marks a potentially positive signal, suggesting the upward price momentum may have traction.
Many traders suggest waiting until the 50-day moving average crosses above the 200-day moving average by a certain percentage, such as 3 per cent, to confirm the bullish signal.
With respect to Killam Apartment REIT, the unit price appears to have stabilized, finding support around $11.50, near the 50-per-cent retracement level.
To illustrate, the unit price rallied from around $10 at the start of the year, peaking at just over $13 in July. After which, the unit price came under pressure, finding support halfway between $10 and $13, around $11.50 (the 50 per cent retracement level).
The unit price has managed to hold above this key support level. However, should there be a renewal in selling pressure, the next support level is around $11.
From a fundamental perspective, analysts are forecasting solid gains for this REIT. There are 10 "buy" recommendations and one "hold" recommendation. There are no "sell" recommendations.
One-year target prices range from a low of $13.50 to a high of $15, implying there is upside potential of between 13 per cent and 26 per cent. Individual target prices are as follows: four at $13.50, two at $13.75, four at $14, and $15.
The REIT offers unitholders an annualized dividend yield of roughly 5 per cent.
The consensus funds from operations (FFO) per unit estimates are 86 cents for 2016, increasing to 91 cents for 2017. The consensus adjusted funds from operations (AFFO) per unit estimates are 76 cents for 2016 and 81 cents for 2017. In addition, the security has positive revisions. At the start of the year, the consensus FFO per unit estimates were 84 cents for 2016 and 88 cents for 2017. While the AFFO per unit consensus estimates were 73 cents for 2016 and 76 cents for the following year.
Listed below are securities with recent Golden and Death Crosses, as well as potential future Golden and Death Crosses.
This report is based on technical analysis. Technical analysis does not replace fundamental analysis, but can help identify companies worth having a closer look at.