Mid-America Apartment Communities Inc. is a large REIT with ownership interest in over 100 000 apartment homes in 16 US states and D.C. The company has a market cap of nearly $19 billion and is a member of the S&P 500 index. Ultra-loose monetary policy and money printing during the pandemic helped push the stock to an all-time high of $232 a year ago.
Alas, easy come, easy go. As the Fed started aggressively raising rates to bring inflation down, Mid-America Apartment stock came down with it. The stock fell to $141 two months ago and despite the following recovery to $156 so far, it is still down by a third from its peak.
REITs are notorious for financing their projects predominantly with borrowed funds. And while 97% of Mid-America ‘s debt carries a fixed rate, higher interest rates are nevertheless dragging down the valuation of its properties. From this angle, the decline in the stock can at least be understood. Does it present a buying opportunity, though, as the Fed is already slowing the pace of tightening?
Macroeconomic forecasts are nearly impossible to make due to the huge number of moving parts. So, instead of trying to predict what the Fed might do next or how the economy is going to react, we prefer to focus on the charts. Fortunately, we cannot ask for clearer Elliott Wave patterns than the ones on Mid-America ‘s weekly and 4-hour charts.
As visible, Mid-America spent the nearly 30 years since its 1994 IPO drawing a five-wave impulse pattern. We’ve labeled it I-II-III-IV-V, where wave II stands for the 2008 housing crash and wave IV coincides with the 2020 Covid-19 panic. Two lower degrees of the trend can be recognized within wave III. According to the theory, a three-wave correction of the same magnitude follows every impulse.
So, if this count is correct, the 2022 drop from $232 to $141 is part of a bigger A-B-C retracement, which has yet to fully develop. Corrections usually erase most or all of the fifth wave. For Mid-America Apartment, we’d expect a decline to at least the support area near $110 a share in wave C. In addition, a closer look at the structure of wave A on the 4h chart below only increases our pessimism.
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This smaller time-frame reveals that the plunge to $141 is also a five-wave impulse, marked (1)-through-(5) in wave A. The five sub-waves of (1), (3) and (5) are visible, as well. Wave (2) has ended just after touching the 61.8% Fibonacci level. Wave (4), albeit deeper than usual at over 50% of wave (3), still didn’t touch the low of wave (1).
What is true about the weekly chart also applies to the 4-hour one. Here, we can expect wave (c) of B to lift Mid-America stock to the resistance of wave (4) near $190, before the bears can return in wave C towards $110. This means investors might make a good return over the next quarter or so, but MAA is likely to have fallen further by the end of 2023.
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