After a cascading selloff over the past several trading sessions, Utilities appear to be finding some degree of footing in this period of heightened volatility. For fully invested market participants, the group’s outperformance is testing a key zone that bulls are watching closely. Breadth in the space has unsurprisingly become washed-out to the downside, leaving a potential countertrend opportunity for those looking to play a potential bounce after the violent price action.
S&P 500 Utilities
Utilities have found support at the 334 zone after swift selloffs below the declining 50-day moving average. Note that previous selloffs throughout the past year have been much more orderly, while the most recent downside move left little footing for buyers to hold the line. Relative to the S&P 500, the group has broken below the ratio’s rising 50-day moving average for the first time since February of this year and is testing relative support at the highlighted zone. Until relative support has broken to the downside, it’s too early to say that the space has given up its relative outperformance.
Electric Utilities have experienced much of the same price action as the index, finding support at the 375 zone after a strong selloff below a declining 50-day moving average. However, relative to Utilities, the group is an emerging outperformer in the process of a bearish to bullish transition, with the ratio above the highlighted breakout zone and the ratio’s rising 50-day moving average.
Water Utilities have sliced through support at the 209 zone after finding resistance at the declining 50-day moving average early in the month. Relative to Utilities, the group has found resistance at the highlighted zone below the ratio’s declining 50-day moving average. With bearish absolute and relative trends in play, this group is a hard pass until the bulls take control.
Unimmune to the selling pressure, Gas Utilities have broken long-term support and found resistance at the 112 zone below a declining 50-day moving average. Note that the selloff in this space has been much less dramatic than either the index or other industry groups. Relative to Utilities, the group has regained the highlighted breakdown zone and the ratio’s declining 50-day moving average to the upside in yet another run at outperformance.
Breadth
The percentage of Utilities components trading above their 20 and 50-day moving averages both printed readings of zero in yesterday’s trading session after the recent violent selloff in the sector. There were 110 instances since 1996 when the percentage of Utilities components trading above their 20 and 50-day moving averages both equaled zero for a median gain in the sector of 3.89% with a 69.16%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 55 trading days out at 5.26% on an improved 79.44%-win rate, so consideration should be given to hold times. While these results have been attractive, investors would be prudent to apply a magnified risk management process as the index trades below its declining 50-day moving average.
This note is a preview of our Thursday Sector Deep Dive. See our thoughts and more in the full report.
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