Trading Patterns Show Israel Real Estate Stock Rally May Be Done

  • Tel Aviv’s real estate index has outperformed benchmark gauge
  • RSI, Fibonacci, Bollinger show roadblocks now forming

The clouds are starting to gather over Israeli real-estate stocks.

After clocking up the best gains in seven years versus the country’s benchmark share gauge, the EST-15 Index of property and construction companies has dropped five days running as technical indicators suggest it’s about to face some hurdles.

Israel’s real-estate index has surged 23 percent this year, while the main TA-25 Index has dropped 5.4 percent, amid an increase in consumer spending that’s boosted revenue at retail stores, helping them meet their rental payments. Meanwhile, near-zero interest rates have cut financing costs for an industry that needs to raise money to fund development and construction.

“The factors driving the real estate rally are all priced in,” said Yishay Sasson, a Tel Aviv-based analyst at Bank of Jerusalem Ltd. “If the real estate companies get a much higher cash flow, close good deals tomorrow morning and increase rental prices by 10 percent, there could be more upside. But I don’t see this happening.”

Sasson recommends investors hold the shares and “enjoy the annual yield and dividend.” Psagot Investment House Ltd., the country’s largest money manager, this month also lowered its recommendation for the segment to hold from buy.

The relative strength index of the EST-15 Index climbed in August to the highest since May 2015 on a monthly basis, nearing the 70 level that signals securities may be poised to reverse. The measure declined 8.8 percent in the month after breaking through that level last year, the biggest monthly loss since August 2011.

Should the EST-15 Index rise to 505.29 it would mark a 50 percent recovery of the gauge’s drop from a record peak in 2007 to an all-time low in 2008, a key technical barrier according to the Fibonacci sequence. If the measure, currently at 481.47, breaks the resistance it should then gain up to 594.8, but if it fails it could fall as low as 415.78. In April 2015 it failed to cross the 50 percent line and dropped by more than a quarter in the next 10 months.

The EST-15 Index crossed the upper boundary of its Bollinger band on a weekly basis, signalling it may be due a short-term pull back. The gauge slipped 3.6 percent in the past five trading days, headed for the longest losing streak since June 1 at the close in Tel Aviv. Still, while the measure is testing the upper boundary at two standard deviations from the 20-day moving average, it remains well within the limit based on three standard deviations. That suggests the broader bullish trend may still be intact.

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