This week, the massive rout in New York Community Bancorp (NYCB) shares drew plenty of attention.

On Tuesday, the stock fell 22% following its quarterly loss and dividend cut. That marked around a 60% fall since its earnings release at the end of last month.

Analysts are now poring over other banks’ loan books, particularly regional and smaller banks. They’re checking their exposure to the commercial property sector.

Rising interest rates and subdued demand for office space have seen the value of some real estate plummet.

So today I want to take a look at the commercial property sector as a whole using the iShares U.S. Real Estate ETF (IYR).

IYR invests in a wide range of commercial property REITs, including telecom towers, industrial, and retail. (These three areas represent around 38% of its holdings.) It also invests in REITs for healthcare, data centers, and self-storage.

So let’s see how IYR is tracking…

A Converging Pattern

In the chart of IYR below, you can see that it had a very subdued 2023.

It initially peaked for the year in February 2023. Then IYR slipped lower through October (despite a countertrend rally in July).

iShares U.S. Real Estate ETF (IYR)


Source: eSignal

The 10-day Moving Average (MA, red line) moved back and forth across the longer-term 50-day MA (blue line). But both started tracking lower in August.

IYR’s fall from its July peak coincided with the Relative Strength Index (RSI) retracing from overbought territory (upper grey dashed line).

That down move continued further with the RSI stuck in the lower half of its range.

But a converging pattern between the RSI and IYR’s stock price laid the grounds for its next rally (orange lines).

When momentum is building like this (lower orange line), it becomes increasingly difficult for a stock to fall.

IYR locked in its low on October 30. Then it rallied as the RSI continued to track higher.

That rally accelerated with the RSI breaking up through resistance (green line) and gaining traction in its upper band.

The sharp angle of the 10-day MA crossing above the 50-day MA showed the strength of that rally. And it pulled both MAs higher.

Take another look:

iShares U.S. Real Estate ETF (IYR)


Source: eSignal

Eventually, though, IYR’s rally became stretched. The RSI broke back into overbought territory but then inverted and fell. This pulled IYR down.

Now the 10-day MA has fallen below the 50-day MA. And the RSI is tracking below support. So what can we expect from here?

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Declining Momentum

As the chart shows, the RSI has tried multiple times to break back up through resistance.

But so far, it has been unable to break through (red circle).

If the RSI continues to fall and stays stuck in its lower band, then declining momentum will keep pulling IYR lower.

The other thing to keep tabs on are the two MAs.

If the 10-day MA accelerates below the 50-day MA and both drop, IYR’s fall will have much further to go.


Larry Benedict
Editor, Trading With Larry Benedict


Do you think the commercial real estate sector can recover in 2024? Let us know your thoughts at [email protected]