The real estate investment confidence (REIT) giant Realty Income Corporation (O) has been consolidating sideways for months now. However, it is gearing up for a quick double-digit breakout in the coming weeks.
Realty Income owns over 6,000 real estate properties for the sole purpose of returning income to shareholders. He paid a monthly dividend for 51 years and has increased its dividends more than 100 times since its IPO in 1994.
We’ve seen investor appetite fluctuate for income-based REITs like this. Since traditional yields are still extremely low, REITs are more attractive to income-seekers, but investors still cannot ignore price movements.
Right now, prices are bracing for a breakout that needs to be on investors’ radar. The consolidation since July has created a ascending triangle pattern, with red resistance line and green Support line converging to a breakpoint.
The ascending triangle pattern is one of my favorites to follow because it tells us so much. We know the main breaking points to watch out for: trend lines on the graph. Once we get a break above or below either of these trendlines, we then get a price target by taking the height of the pattern, $10 in this case, and adding it to the break.
So if the shares break below the $56 support, we get a quick price target of $46. And on the upside, the breakout could be around around $61, which would give us a price target of $71 per share in a quick way, which would equate to a 16% rally.
The only problem is that we don’t know which direction to expect the breakout to go. For this, we can turn to the handy Relative Rotation Chart (RRG). I’ve shaded the prices on the chart to reflect where the property income is based on the RRG, relative to the S&P500.
The RRG combines the relative strength of the stock to the S&P 500 with momentum to create a single view of inventory. It shows stocks rotating from the head of the overall market, weakening as momentum slows, and eventually trailing the market, before improving as momentum picks up to return to the bottom. lead the market once again. Stocks tend to rotate in this specific order: leading, falling, lagging, and improving.
Right now, real estate income is in the lagging section of the chart and should trend towards improvement. As it is, this should help lift stocks near the red resistance level and could be enough for a breakout on the upside.
Realty Income was the favorite stock for those looking for income. But after the pandemic-related crash, stocks consolidated for months into an ascending triangle. Stocks are approaching a breakout point in the coming weeks, which could see the stock soar into the double digits quickly. Based on the RRG, I’m looking for real estate income to explode higher and reach a price target of $71 in the coming months.