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Unimmune to the selling pressure, Utilities have finally given way to the market-wide volatility that’s gripped the indexes and sectors alike. Under the surface, the sector has become “less bad” as it trades to a new high relative to the S&P 500, attracting the attention of investors who must always remain invested. Similar to Small Caps, breadth in the space has become so bad it might be good, but investors would be vigilant in attempting to play for a countertrend bounce at these levels. 

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S&P 500 Utilities 

The Utilities sector has found notable resistance at the rising 50-day moving average, and the 368 level as the group struggles to maintain footing in this period of heightened volatility. Relative to the S&P 500, the group has made a new high well above the ratio’s rising 50-day moving average and being a prime example of finding what’s “less bad” in this market environment.

Electric Utilities have also found resistance at the rising 50-day moving average and the 412 level after a strong run out of the February lows. Relative to Utilities, the group remains an underperformer, stuck in the highlighted relative resistance zone below the ratio’s declining 50-day moving average.

Water Utilities have lost the 214-support level in the last two trading sessions below a declining 50-day moving average after an attempt to stabilize at this level earlier in the week. Relative to Utilities, the story of continued underperformance remains the same, with the ratio trading to new lows in the year below highlighted relative resistance and the ratio’s declining 50-day moving average.

The uptrend in Gas Utilities is in the process of threatening to roll over to the downside as the group has found resistance at the rising 50-day moving average and remains rangebound between 121 resistance and 116 support. Bulls want to see the 50-day moving average and the 121-level taken out to the upside, while a breakdown from 116 support would lend confirmation to the bears that the trend is shifting from bullish to bearish. Relative to Utilities, the group is testing the highlighted relative support zone and is unable to break through the ratio’s declining 50-day moving average. The bias is with the bears should the highlighted relative support zone break to the downside.

Breadth 

The recent selloff in the space has brought with it material declines in the percentage of Utilities components above their 20-day moving averages, printing consistent readings below the 10% level over the past few weeks. There were 734 instances since 1996 where this indicator printed readings below the 10% level for a median gain in the sector of 3.19%, with a 69.78%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 55 trading days out on a slightly improved 70.87%-win rate, so consideration should be given to hold times. While these results have been attractive, investors would be prudent to note the negative skew in the results, suggesting a higher likelihood of a deeper decline when this breadth condition is present, despite the bulk of results being positive with a favorable win rate. Negative skew combined with the sector trading below resistance and the 50-day moving average should warrant heightened risk management for those investors looking to play a countertrend bounce in the space.

STOCKS ARE COVERED IN THE SECTION BELOW

Weekly Scan

WEC Energy Group (WEC) Relative to Utilities

WEC hit our scans for new six-month highs relative to Utilities this week after breaking out of long-term relative resistance to the upside. There were 418 instances since 1995 where WEC made a new six-month high relative to Utilities for a median relative gain of 2.12% with a 62.02%-win rate over the following quarter.

Historical Performance When WEC Makes a New Six-Month Relative to Utilities

NRG Energy (NRG)

NRG hit our scans for new three-month highs this week after breaking out of $41.70 resistance to the upside. There were 450 instances since 2000 where NRG made a new three-month high for a median gain of 2.91% with a 57.17%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 47 trading days out at 4.19% on an improved 61.43%-win rate, so consideration should be given to hold times. While these results have been attractive, investors would be prudent to utilize the $41.70 zone for risk management.

Historical Performance When NRG Makes a New Three-Month High

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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.