The sellers have stepped up in full force at the April highs of this year in the Utilities sector, denying a breakout as the group rallied strongly out of the June lows. Electric Utilities remain the only industry group outperformer, while Water and Gas Utilities continue to struggle. Breadth in the space has been, at first glance, a positive development, but a deeper look into history reveals that this strong trend breadth hasn’t been material for the sector.
S&P 500 Utilities
Utilities have sold off from resistance at the 393 zone and the prior highs in April of this year above a rising 50-day moving average. While the rally from the June lows has been strong, bulls want to see a breakout above this zone to have confidence that the upside trend could continue. Relative to the S&P 500, the group remains above both relative support at the highlighted zone and the ratio’s rising 50-day moving average in consolidation mode.
Electric Utilities have broken down below the 440-breakout zone over the past week of trading above the rising 50-day moving average after breaking out early last week. There is still time to recover this level to the upside, but risk management is warranted here due to the breakdown. Relative to Utilities, the group remains an outperformer as it trades above long-term relative support at the highlighted zone and the ratio’s rising 50-day moving average.
Water Utilities have once again met resistance at the 236 zone and are heading for a test of the rising 50-day moving average. 236 has been at a zone that the industry group has struggled with in the past, and below this level, risk management is key. Relative to Utilities, the group remains an underperformer, trading below the ratio’s declining 50-day moving average and testing relative support at the highlighted zone. If the group is going to make a stand to turn the tide of underperformance, this level should be one to keep an eye on for a potential rebound. Until then, the onus is with the bears.
Gas Utilities continue to trade below 127-resistance after failing to break out from this level late last month. Trapped between the flat 50-day moving average and a long-term resistance zone leaves this industry group in no man’s land. Relative to Utilities, the former outperformer has rolled over and broken relative support to the downside below the ratio’s declining 50-day moving average.
Breadth
The percent of Utilities components trading above their 50-day moving average has consistently printed strong readings above the 95% mark over the past several weeks of trading. There were 228 instances since 2009 where the percentage of Utilities components trading above their 50-day moving average was greater than the 95% mark for a median gain of 20bps with a 52.83%-win rate over the following quarter. While many of the strong breadth readings above their 50-day moving average that we have highlighted in other sectors have historically been a positive development for the space, unfortunately for this group, these strong readings have not been a catalyst for the sector to move higher over the following quarter. While many might point to the strong breadth in this space as a positive development on the surface, this example highlights the importance of analyzing the data around these events.
This note is a preview of our Sector Deep Dive.
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