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As the sector falters under the 50-day moving average, the former defensive outperformer appears to be rolling over on a relative basis as risk appetite begins to increase within the equity markets. Electric and Gas industry groups maintain their outperformance relative to Utilities, while Water Utilities continue to struggle. Short-term breadth has approached washed-out levels in the July 20th trading session leading to a potential countertrend move, but will it be enough to rally the sector back above the 50-day moving average?

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S&P 500 Utilities 

Utilities continue to struggle under the declining 50-day moving average after a paltry attempt to break out above the indicator early in the month. Relative to the S&P 500, the group has broken relative support below the rising 50-day moving average as the market’s risk appetite appears to be increasing.

The price action within the Electric Utilities industry closely mirrors that of the sector, struggling below the declining 50-day moving average. Relative to Utilities, the group is an emerging outperformer, trading above both relative support and the ratio’s rising 50-day moving average after breaking down in the first half of the year.

After recapturing the 212 level in late June, Water Utilities are compressed between the declining 50-day moving average and the 212-support zone—a critical juncture for the industry group. Relative to Utilities, the trend of underperformance continues as the ratio is trapped between the highlighted relative resistance zone and the ratio’s flat 50-day moving average.

Gas Utilities continue to struggle below the declining trendline of resistance and the flat 50-day moving average after rebounding from long-term support at the 106 zone in mid-June. Relative to Utilities, the group maintains its trend of in-line performance, trading above the ratio’s rising 50-day moving average within the relative trading range.

Breadth

The percentage of Utilities components trading above their 10-day moving average crossed below the 10% mark in yesterday’s trading session, marking a potential short-term washout in breadth in the space. There were 293 instances since 1996 where the percentage of Utilities components trading above their 10-day moving average crossed below the 10% mark for a median gain in the sector of 2.88%, with a 69.44%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 58 trading days out at 3.79% on a slightly reduced 69.20%-win rate, so consideration should be given to hold times.

This note is a preview of our Thursday Sector Deep Dive. See our thoughts and more in the full report.

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