Swing Trading Strategies & Stock Picks Since 2003

You may have noticed today that the ProShares UltraShort Real Estate ETF (SRS) was up strongly Monday (3/16/09), tacking on almost 16%. This is far in excess of the 4% that the UltraShort Financial ETF (SKF) rose.
What gives?
It could be that investors are beginning to realize that the situation in commercial real estate is becoming worse than what we have seen in residential real estate. The Fed provides the data from which we constructed the following chart. It contrasts the charge-off rates for residential real estate loans and commercial real estate loans.

Whereas it looks like charge-offs in the residential sector are beginning to moderate, it appears that charge-offs in the commercial sector are really taking off, increasing rapidly and surpassing the rate for residential loans. As of the end of the 2008-Q4 there was no moderation at all in the slope of commercial loan charge-offs.
Since many financial institutions have seen their stock prices decimated as mortgage-backed securities imploded as the underlying residential mortgages went through foreclosure and the charge-off process, it stands to reason that REITs facing these levels of charge-offs will similarly see their stock prices crash. This is bad for investors in REITs but good for anyone who owns an inverse real estate ETF like SRS.

This rally we have seen over the past week drove SRS down from over $100 to almost $60. This may turn out to be a pretty good buying opportunity for SRS.