Real Estate and Bond Market correlation useful in trading

Over the last month the markets have been apprehensive over the possible termination of QE. The fear is now priced into most intrest sensitive securities, the question remains will we see further downward movement. Bill Gross's total return fund lost over 2% last month, the largest one month drop since 2008, and vanguards REIT has dropped nearly 13% since may. While these drops are different on a % basis, on a volatility adjusted basis they are quite similar. However, the largest issue with current bond market analysis is that no one knows where the real bottom is because the fed has been buying $85 billion every month. This being said, VNQ and the bond market have historically demonstrated a significant correlation due to their dependence on intrest rates and for this reason VNQ may be a useful tool in predicting BOND and vice versa.

Moving on to the chart. VNQ has broken under its 20, 50, and 100 day moving averages. It is currently holding at a point of significant support (69.26) and it has more support at 67.98. Using nmike's TRIX system we see a 7 period crossover indicating that one should exit short positions and wait fisher divergence. Given that the bond market has already broken its 200 day MA and Fisher is now in a downtrend I believe we will see continued downward movement after a period of mild consolidation. If VNQ breaks below 67.98, or 200 day resistance, we will likely see a bear market in Real Estate.