CRE trading opportunity in NRO

I didn't do it, but somebody sure did. Neuberger Berman Real Estate Security Income Fund (NRO) has now joined my "Shoulda, Coulda Stocks".

Like Ford Motor (F), I called up a buy screen for NRO a number of times in the past 4 months. This fund invests in securities issued by real estate companies including REITs (common, preferred, convertible, debt) in commercial, industrial, and residential real estate.

There is hardly anything good written about real estate these days, and commercial real estate (CRE) is the number-One pick by just about every analyst, economist, and investors as "the next (big) shoe to drop" that will bring the financial markets down.

I know all that, I read these articles. And when I see the local credit union that lends money to local businesses and real estate development posting $12 million loss (about $5 million it is due to increased regulatory fees) for the 1st quarter, and the mall where the credit union is located has lost two large anchor stores due to bankruptcy, and when I read that the commercial real estate value loss could amount to more than $1 trillion, I feel that "the shoe" will have to be so big that it will cover from horizon to horizon.

Then why was I interested in this stock? As the chart above (weekly) shows, there are some good things going for the stock: possibly a shallow but proper double bottom formation, with the potential buy point at middle of the W plus 10 cents ($2.26); positive divergence in RSI and MACD.

But my interest was mostly contrarian. Since so many people think CRE is the next shoe to drop and advise investors to avoid CRE and REIT stocks like plague, I figured it would be a less crowded (and easier) trade. And while you own the stock, you get monthly dividends (annual rate of 23%).

And so it has been, for now. NRO went from $1.15 when I last called up the screen (late March, I think) to $1.98 on Friday's close, 72% gain.

Fffffooooorrrrdddd...........!!!!!!!!!!!

Ford Motor, that is. The ticker symbol F cannot appear on my "Shoulda, Coulda Stocks" column (to the right) often enough. I called up the buy screen at least 3 times now. Ford announced the 1st Q results today, and since the results were less bad than expected, the stock has skyrocketed 16% to $5.22 (as of 10:24am PST).

I am mad at myself for not acting on this stock, so I've done some chart analysis to clearly see what I was feeling (that F was a buy). The 3rd chance was just this Tuesday, when it touched the trend line and bounced back up. The very next day, Goldman Sachs upgraded the stock, along with Japanese auto makers, to Buy.

Now I'll have to see if this pop is sustainable. You wouldn't think so but I've seen such a thing sustained. If it falls back and stays not far below the previous top, that may be another opportunity. On a longer-term chart (2 year), there seems to be a large overhead between $4.50 and $6 so the stock could well be bobbing in this area for some time.

The easy trade may be finally over for F, but who knows... Certainly I don't. I thought the easy trade was over every time F doubled in price.

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Looks like my other obsession, NRO, may be joining the "Shoulda, Coulda Stocks" soon... Who could have known, the closed-end fund that invests in REITS and CRE can perform so well?

SRS and CRE Bond Spreads

A lot of analysts and traders have been saying that commercial real estate (CRE) is the next shoe to drop (I just wonder how many more shoes are left to drop). News is bad and getting worse.

So you would think SRS, an ETF that seeks investment results which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index, would be flying high. The graph, above left, is SRS performance since last October. The huge 2 spikes in October and November correspond to the market swoons that took place. But notice, ever since then, it's been mostly a sell-off on an increasing volume.

The graph, above right, is CMBX index since last October. The index tracks the spread of BBB tranches of CRE bonds (CDO, MBS). Despite all the bad news you hear, the spread has been narrowing.

SRS seemed like such a bargain when it dropped from $240 to $60 and I almost bought it. Glad I didn't. However misplaced this seeming optimism shown in narrowing CRE spreads may be, fighting the trend with SRS looks like a losing proposition for now.