Everyone knows that the home-builder stocks were waving the warning flag in 2006 that a major crisis was coming. The home-builder stocks topped in July 2005 and began there decline lower. However, the major stock market indexes continued to climb higher into October 2007. Most smart traders and investors recognized this in 2006 and knew that eventually the stock market could not continue higher when the prior rally from 2003-2007 was based off the housing market boom.
Once the market crash took place throughout 2008 and early 2009 everyone was talking about the commercial real estate stocks leading the markets lower and being the main catalyst. As we all know the Ishares Dow Jones U.S. Real Estate ETF (NYSE: IYR) actually lead the rally higher from the March 2009 stock market low. During the entire 2009 and early 2010 rally it was the commercial real estate stocks that lead the markets higher. This index is no longer being talked about as a catalyst for the next major decline. Remember the market rarely does what everyone is expecting when most traders and investors are watching the same thing at the same time.
Leading commercial real estate stocks such as Simon Property Group Inc (NYSE: SPG) and Vornado Realty Trust (NYSE: VNO) should be watched very closely. These leading stocks have often signaled major and minor stock market pullbacks downturns. The news about the commercial real estate stocks is essentially worthless. It is the price action in these leading stocks that will tell the truth. Therefore, do not get caught up in listening to the talking heads in the media. Watch and learn to read the charts. Remember every talking head in the media was talking about commercial real estate as being the next shoe to drop in March and April 2009. The charts did not say this and the charts were correct. Watch the price action in these names and judge it for yourself.
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