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Utilities Are Sending Warning SignsThe chart above is a weekly chart of the entire price history of the PHLX Utility Sector (UTY). (The PHLX part of the name is just an historical reference to the Philadelphia Stock Exchange, which is now part of the Nasdaq.) I chose this specific ticker over other utility tickers like XLU or VPU because it provides more historical data and therefore a more powerful statistical analysis. The channel that you see is a regression channel. A regression channel shows how far above or below the mean price is currently trading. For more details about this channel, you can read the statistics note at the end of this post. Here are some warning signs that this chart is showing: 1. Utilities are outperforming the broader market. See the chart below. In the above chart, you can see that the utility sector ETF (XLU) just posted a new all-time high this past Friday. Utilities typically outperform the broader market in the late phase of the business cycle right before (and during) a recession. See below. Credit: Fidelity Investments In the main chart above (reposted below) we see that in 2022 price hit the 2nd standard deviation above the mean for the first time since 2007. Price is currently continuing to move higher and it is very possible that it can overthrow the 2nd standard deviation again. This is sending a warning sign that investors are shifting money into utilities because they believe that we are in the end stage of the economic cycle. 2. Utilities are ripping higher at the same time that tech is ripping higher. This is another warning sign. See below chart. This is somewhat of a nuanced point: Although tech and utilities are not necessarily negatively correlated and can both rise at the same time, they rarely both outperform the broader market (S&P 500) at the same time as they are doing now. To get to the bottom of what's going on, we should analyze a ratio chart between the two assets. See the chart below. This chart suggests that tech (QQQ) is rallying because it is testing resistance levels. Tech's performance relative to utilities has fallen below the monthly exponential moving averages (known as the EMA ribbon). It has likely become trapped below the EMA ribbon as it did in 2000. We can be fairly safe in making this conclusion because of the Ichimoku Cloud is forming an ominous coverage (resistance) on the weekly ratio chart similar to 2000 {for this I used the Nasdaq (IXIC) and the PHLX Utility Sector (UTY) for the comparison only because they have enough historical data to form the Ichimoku Cloud for 2000}. This is a warning sign that tech's rally is merely a bear market rally (or a rally in which resistance levels are retested but price fails to break through). 3. When I analyze utilities relative to the S&P 500 on the yearly chart two additional warning signs appear. See chart below. First, the yearly stochastic RSI shows that we approaching full oscillation down. The K line has reached oversold territory and has already begun to move up toward the D line. This could mean that utilities are gearing up to outperform the broader market for years to come. Of note, since this a relative chart, it does not necessarily mean that the price in utilities will increase over the period of outperformance, it may merely decline by less than the S&P 500 if both are falling. Second, the yearly candlesticks fully retraced to the low seen in 1999, right before the Dotcom Bubble burst. Although the SPX can squeeze out one last period of outperformance (one last bull run), the chart is sending a warning sign that this period of outperformance may be coming to an end. Further, the fact these two factors are coming together right as utility prices reach their 2nd standard deviation above the mean, in my opinion, presents a warning of what's to come for the broader market. So much confirmation is quite ominous. 4. Although, utilities are sending a signal that they may potentially outperform the broader market for years to come. When you observe the actual charts of utility components (companies that comprise the utility index), some of the charts are also extremely overbought on the highest timeframes and vulnerable to collapse, or at best stagnation. Take for example the utility company Next Era Energy (NEE), shown below. The regression channel in the chart above shows that, during the era of quantitative easing, NEE's price soared over the years to the highest levels that price can typically achieve from a probabilistic standpoint. If some utility companies are so over-extended to the upside and are vulnerable to collapse or stagnation, then even utilities may fail to serve as a safe haven if the stock market collapses. This is reflective that in the face of quantitative tightening all risk assets are vulnerable to major declines. My thoughts on how to trade this (not a recommendation): Personally, I'm ambivalent about entering a long position in utilities. Although they may outperform the broader market, since the price is already near the 2nd standard deviation above the mean, and at least some utility components are way overextended, utilities do not present an ideal risk-to-reward trade set up. Nonetheless, if I do end up taking a position in utilities, I will definitely use a trailing stop loss on my position. I see a better option in U.S. treasuries (e.g. TLT). Treasury rates typically go down, and therefore prices go up, during recessions. From a price regression perspective, treasuries are trading at historical lows, and therefore the upside potential is much better. I plan to accumulate treasuries when they reach their terminal rate again or after the weekly chart consolidates, whichever comes first. With that said, not even trading treasuries is risk-free in this unprecedented time of quantitative tightening and persistently high inflation. If inflation persists, the yields on the 10-year U.S. treasuries may need to rise dramatically higher to definitively squash it. The yearly stochastic RSI for treasuries is providing a tailwind for higher yields over the years. This in turn could bring down the price of treasuries, thereby making not even treasuries fully safe in this new supercycle characterized by persistent inflation and slowing real GDP growth (i.e. stagflation). Counterintuitively, it's a great time to be a trader as profit will likely only be made by those who constantly shift money into outperforming assets dynamically using charts and technical analysis. Statistics note: The upper and lower channel lines are 2 standard deviations above and below the mean, respectively. A total of 1,821 data points (total amount of weekly candles) formed this channel. The Pearson score is .95676. This regression line is log-based. Although the data may not be normally distributed, I have found that these regression channels are nonetheless helpful in determining what's more likely than not. The channel lines are not drawn by me, they are automatically generated by the indicator based on the data points, so there is no bias in how they are drawn. I simply apply log-linear regression to the entire price history. This channel is different than a price channel in that the lines are not exact points of resistance or support. Price can easily overthrow or underthrow the channel lines and yet the channel is still completely valid. The channel merely represents probability which helps me base my trades. The channel is not static and changes dynamically with price action, though it becomes more and more static with the introduction of more and more data, which is why I only use regression channels on assets with a lot of data points. Finally, I am not a statistician and do not intend to hold myself out as an expert on statistical analysis. Additional note: Some of my prior posts back in May and June called for bullishness in tech stocks. Those posts were for the intermediate term (months). Although I saw bullishness for tech in the intermediate term then, in the long term the picture is quite bearish.
TVC:UTY
by SpyMasterTrades
15
XLU INFLATION vs DEFLATION game set match it is OVER OCT is going to be like a raging storm or forest fire . run as far as you can there is No place to Hide outside of Cash and the US $ . 90% plus of investor and above 90 % of TRADERS have not lived thru a BEAR MARKET BUT THEY WILL The FED MANDATE as to inflation the spread is at 600 basis they will be happy if they can get it to 200 and Unemployment is easy to go to 5.5 to 6.5 by spring . They stopped the printing on sept 2 2021
AMEX:XLUShort
by wavetimer
1
Market "Risk Off" indicators warranting attentionThe long-term stock market trend unquestionably continues to be an upward one. However, there are seasonal and other factors (such as market breadth, etc) that may be pointing towards a potential pause or reversal. Since no single indicator is fool-proof, a "weight of the evidence" approach is always warranted. Such an approach ideally includes a variety of indicators that could offer an advance signal of a switch from "risk on" to "risk off" environments. One such measure to consider in your toolbox is how defensive equities such as Utilities (typically sought out for their yield) are faring against the broader equity market. The accompanying relative strength measure plotting $XLU against $SPY has broken trend and reversing upward for the last several weeks. Again, not overwhelming by itself, but when coupled with other indicators (such as previously posted JNK or XLP updates) it warrants continued monitoring in the coming weeks.
AMEX:XLU
by jay_S_
XLU, Immediate term trade and trend [08OCT2021]XLU went strong bearish. I love to add this to short side of my portfolio, but my broker doesn't unfortunately allow it. Then why do I track it? well, The code tracks sectors and ETFs to give a current weather of the market. From what I can see so far, we are headed to another liquidity rush. Where, Equities make new all time highs. If you can add it to the short side, I would suggest also adding XLF to the long side, along with a small XLK position too. Let's see how this plays out Redd
AMEX:XLUShort
by reddan256
Sector Winners and Losers week ending 9/17Energy (XLE) topped the sector list this week after the OPEC Monthly Report on Monday projected that demand for oil would exceed pre-pandemic levels by next year. The sector also got a boost from Crude Oil Inventories data released on Wednesday that showed much higher demand than expected. Consumer Discretionary (XLY) moved into second place after great Retail Sales data on Thursday. Utilities (XLU) and Materials (XLB) were the bottom two sectors for the week. Although markets were lower this week, investors did not flee to defensive sectors.
SP:SPX
by drewby4321
Sector Winners and Losers week ending 9/10All sectors declined this week as the S&P 500 pulled back from all-time highs. Consumer Discretionary (XLY) was poised to end the week with gains before losing those gains in Friday afternoon selling. Real Estate (XLRE) was the worst-performing sector of the week after outperforming the market in the previous week. The sector erased all of last week's 4% gain as investors reversed the trade that is supposed to protect against inflation and benefit from low interest rates. Utilities (XLU) took the top position on Wednesday but gave the lead back to Consumer Discretionary on Thursday.
SP:SPX
by drewby4321
Sector Winners and Losers week ending 8/27A mix of growth and cyclical sectors topped the list this week. Defensive s all sectors declined for the week after topping the sector list last week. Energy (XLE) held the lead among sectors for the entire week, despite a pullback on Thursday. The sector completely recovered from last week's decline and marked a higher high this week. All of the cyclical and growth sectors had solid gains, with Financials (XLF) ending the week in second place. Technology (XLK) trailed the other gaining sectors, underperforming the overall S&P 500 but still finished with a +1.45% gain. Utilities (XLU) was the worst-performing sector for the week as investors rotated out of defensive positions and back into bullish cyclical and growth positions.
SP:SPX
by drewby4321
1
Sector Winners and Losers week ending 8/20Defensive sectors led throughout this week as the Market absorbed data that showed a slowing economic recovery and meeting minutes from the Fed that indicated tapering could begin this year. Utilities (XLU) and Health Care (XLV) exchanged the lead several times, and the finish was close. Utilities came out on top as a favorite place for investors to keep money in equities, but take a defensive stance toward the economy. Health Care also did well as the world watches another wave of the pandemic brought on by the Delta variant of COVID. Technology (XLK) also mixed in with the defensive sectors at the top of the list. Big tech seems to be another safe play for equity investors with Microsoft (MSFT), Apple (AAPL), and Alphabet (GOOGL) all turning in strong financials and appear resilient to new waves of lockdowns. Suffering the most from fears of economic slowdown as well as the pandemic, Energy (XLE) came in the last place for the week with a huge loss of over 7%.
SP:SPX
by drewby4321
$NRG: Rapid Growth in this Customer Focused Utility CompanyGuidance & Growth NRG is reaffirming its guidance range for 2021 with respect to Adjusted EBITDA, Adjusted Cash from Operations and Free Cash Flow before Growth Investments (FCFbG) which excludes the full year impact of Winter Storm Uri. NRG's FCFbG for the six months ended June 30, 2021 was $768 million. NRG has a very compelling value proposition, a unique consumer business that can deliver 15% to 20% annual growth in free cash flow per share over the next five years. Dividend A strong dividend growing at 7% to 9% per year. A best-in-class sustainability framework embedded in everything we do and a commitment to maintain a strong balance sheet and continue to be excellent stewards of your capital. Technicals You can see we've built up a strong long term base with a recent burst higher. High natural gas prices could be here to stay and NRG could benefit.
NYSE:NRGLong
by Fox_Technicals
Sector Winners and Losers week ending 9/13Materials (XLB) led the sector list for the week, getting a massive boost on Tuesday and Wednesday after the Infrastructure bill passed the Senate. Industrials (XLI) also got a boost from the bill. Financials (XLF) contented for the top spot, gaining from rising Treasury yields that positively impact performance for the sector. However, yields dropped on Friday, and the sector dropped back to third place. The defensive sectors of Consumer Staples (XLP) and Utilities (XLU) also ended the week near the top of the list, signaling caution throughout the week as investors worry about rising cases of COVID in the US and around the world. Energy (XLE) had a few good days but ended the week in the last place.
SP:SPX
by drewby4321
Sector Winners and Losers week ending 8/6Several sectors rallied into the lead throughout the week, but Financials (XLF) came from behind to end the week as the top sector. On Friday, the sector added 2% on top of gains earlier in the week. The rally came as employment data was better than expected, sending Treasury yields higher and brightening the prospects for big bank performance tied to the yields. Utilities (XLU) enjoyed the top spot on Monday and early Tuesday, rallied again on Thursday, but fell to second place on Friday. The defensive sector shows investors were cautious throughout the week as indexes set new records amidst worries the rising Delta variant might pull back the economic recovery. Health Services (XLV) took the lead spot on Wednesday, likely on the view that there will be an increased demand for vaccines and therapies that can handle the resurgence of the pandemic. Consumer Staples (XLP) was the only sector to decline this week, putting it at the bottom of the sector list.
SP:SPX
by drewby4321