Mid-America Apartment Communities Inc (NYSE:). is a large real estate investment fund with Ownership rights in over 100,000 apartment buildings In 16 states in the US and DC, the company has a market cap of nearly $19 billion and is a member of the S&P 500. 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. When the Fed started raising interest rates aggressively to bring down inflation, the housing stock of middle America fell with it. The stock fell to $141 two months ago and despite the next recovery to $156 so far, it Still down a third from its peak.
REITs are notorious for financing their projects primarily with borrowed funds. And while 97% of Middle America’s debt carries fixed interest rates, the higher interest rates nonetheless drag down the valuation of its assets. From this angle you can at least understand the decline in the stock. However, does this present a buying opportunity, as the Fed is already slowing the pace of tightening?
Macroeconomic forecasts are nearly impossible because of the sheer number of moving parts. So, instead of trying to predict what the Fed might do next or how the economy will react, We prefer to focus on charts. Fortunately, we couldn’t ask for clearer Elliott wave patterns than those on the Mid-America weekly and 4-hour chart.
As you can see, Mid-America has spent the nearly 30 years since its 1994 IPO charting a five-wave impulse pattern. We labeled it I-II-III-IV-V, with wave II representing the 2008 housing crash and wave IV coinciding with the 2020 Covid-19 panic. Two lower levels of the trend can be identified within wave III. According to the theory, A three-wave correction of the same size follows each impulse.
So, if this count is correct, the drop in 2022 from $232 to $141 is part of a larger ABC correction, which has yet to fully unfold. Corrections usually erase most or all of the fifth wave. For Mid-America Apartment, we would expect a decline to at least the support area near $110 per share in wave C. Additionally, a closer look at the structure of wave A in the 4-hour chart below only increases our pessimism.
This smaller time frame reveals that the dip to $141 is also a five-wave push, marked (1) through (5) in wave A. The five sub-waves of (1), (3) and (5) are also visible. Wave (2) ended immediately after touching the 61.8% Fibonacci level. Wave (4), although deeper than usual by over 50% of wave (3), It has not yet touched the bottom of the wave (1).
What is true for the weekly chart also applies to the 4 hour chart. Here, we can expect wave (c) of B to lift Mid-America stock to wave (4) resistance near $190, before the bears can pull back in wave C towards $110. This means that investors may make a good return in the next quarter or so, but MAA is expected to decline further by the end of 2023.