Factory Outlet REIT Could Net Traders Double-Digit Profits Before Christmas

October 18, 2013

The economy may be chugging along at a lower level than everyone wants, but the consumer is still out there consuming. Why else would the Consumer Discretionary Select Sector SPDR (XLY) be outperforming the market all year?

While buying retailers and other consumer-oriented stocks is one way to play this trend, there is another. Similar to selling picks and shovels to gold miners, leasing the space needed by retailers to set up shop can be a way to play the future fortunes of retailers. And shares of retail real estate investment trust (REIT) Tanger Factory Outlet Centers (SKT) have just broken out to the upside.

To be sure, REITs and the companies they call clients are not the same thing. REITs got hammered from May through August when the Treasury bond market fell sharply, as they are more sensitive to changes in interest rates than most other sectors of the market.

But with the continued strength in consumer-oriented sectors, including a bit of moxie from consumer staples over the past few weeks, plus what looks to be an upside breakout in the iShares 20+ Year Treasury Bond ETF (TLT), the stage was set for improvement.

SKT responded, first with an upside breakout through its 50-day moving average and declining trendline from May, and more recently, with a move above its 200-day moving average.

SKT Stock Chart
SKT Stock Chart

The technical improvements do not stop there, as SKT has been outperforming the market since mid-August, currently sports strong momentum indicators, and has even seen a bullish turnaround in on-balance volume. From a technical analysis point of view, things indeed look bullish.

Although it is somewhat overbought on a very short-term basis and has moved away from its supporting trendline from August, the rising trend looks able to take it back to its May highs over $38 by the time the Christmas shopping season is in full swing.

Recommended Trade Setup:

-- Buy SKT at the market price
-- Set stop-loss at $33.75
-- Set initial price target at $38.50 for a potential 11% gain in eight weeks

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