MKM: Sell The REITs (And Chemicals), Buy The Utilities

In a report issued Sunday, MKM Partners’ Executive Director and Chief Market Technician, Jonathan Krinsky, shares his weekly technical strategy. This week, the expert recommends selling the REITs and buying utilities.

Krinsky explains that, while a late Friday surge kept the S&P 500 INDEX SPX from closing below its 200-day moving average, the Dow Jones Industrial Average (INDEXDJX:.DJI) closed lower for the seventh consecutive day -- its longest down-streak since 2011.

The expert notes that “a bounce may materialize in the near term, [but] breadth continues to deteriorate as the trend becomes more ambiguous.” The firm still sees $2040 as key support for the S&P 500.

The note continues, “As the equity market tries to decide whether the Fed will move in September, the yield curve continues to flatten. In last week's note, we suggested Utilities were showing early signs of relative strength and, as the only sector to gain ground over the last five days, they are likely to gain more attention this week.”

The firm assures that an interesting way to assess the market's risk tolerance is by looking at two industries that are fairly sensitive to interest rates: Utilities and REITs.

What MKM is seeing now is a “more defensive posturing” by Utilities and, “in addition to being a cautious sign for the broad market,” the experts think a good pair trade here is to be long Utilities SPDR (ETF) XLU and short iShares Dow Jones US Real Estate (ETF) IYR.

Finally, the analysts notice that “Chemical stocks are breaking down” and would thus be sellers of the group. In Emerging Markets, they highlight’s Brazil’s return to 2008 lows in USD terms. This “may offer a tactical bounce, although the primary trend remains bearish.”

Buy Utilities

Buy rated utilities stocks include:

• Atmos Energy Corporation ATO
• Consolidated Edison, Inc. ED
• Laclede Group Inc LG
• NextEra Energy Inc NEE
• NorthWestern Corp NWE
• ONE Gas Inc OGS
• Public Service Enterprise Group Inc. PEG
• Piedmont Natural Gas Company, Inc. PNY
• PPL Corp PPL
• Southern Co SO
• WGL Holdings Inc WGL
• Xcel Energy Inc XEL

Sell REITs

Sell rated REITs are:

• Boston Properties, Inc. BXP
• Capstead Mortgage Corporation CMO
• Cousins Properties Inc CUZ
• Franklin Street Properties Corp. FSP
• Host Hotels and Resorts Inc HST
• Inland Real Estate Corporation IRC
• Liberty Property Trust LPT
• Corporate Office Properties Trust OFC
• Tanger Factory Outlet Centers Inc. SKT
• SL Green Realty Corp SLG
• Senior Housing Properties Trust SNH
• Vornado Realty Trust VNO

Sell Chemicals

Sell rated chemical companies are:

• E I Du Pont De Nemours And Co DD
• Dow Chemical Co DOW
• FMC Corp FMC
• Huntsman Corporation HUN
• LyondellBasell Industries NV LYB
• Monsanto Company MON
• Praxair, Inc. PX