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Last month’s market-wide selloff proved that not even the defensive pockets of the markets were spared, and Utilities were no exception. Note that the price action within the sector is similar to that of June’s selloff, driving the space well below the 50 and 200-day moving averages. Breadth has made a small recovery attempt from washed-out conditions and could provide the fuel needed to attack the 200-day moving average from below.

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S&P 500 Utilities

Last month we noted that the Utilities had established resistance near 393. The bears wasted little time in pushing the group below the 50 and 200-day moving averages, proving that even defensive sectors are not immune in a bear market. On a relative bias, the group has been less bad. The ratio is testing the rising 50-day moving average as it trades below price-based resistance.

Electric Utilities have extended to the downside after failing to hold the breakout at 440. The group is below the 50-day moving average, which is beginning to turn to the downside. However, the jagged pattern of higher high and higher lows remain in place. A move below 365 is needed to negate the bullish price trend. Relative to the Utilities sector, the group is a leader, trading above the rising 50-day moving average and moving toward the 2021 highs.

Gas Utilities are testing/breaking support below the declining 50-day moving average. While there is scope for a near-term rally, odds favor a choppy consolidation as the prevailing trend. A break below the 106 level would put the bears in control. The relative trend remains below broken support, as we noted last month. The ratio is dancing with the 50-day moving average, but it is hard to make a strong bullish case here.

Water Utilities have cascaded lower and are now testing the June lows below the declining 50-day moving average. The group is clearly rolling over after peaking in early 2022. The relative trend is also bearish, trading below the 50-day moving average near the early 2020 lows.

Breadth

As the sector has sold off below its 200-day moving average, the percentage of Utilities components below their 200-day moving average has printed washed-out conditions late last week and started a recovery attempt above the 10% mark in the October 3rd trading session. There were 79 instances since 1996 where the percentage of Utilities components trading above their 200-day moving average crossed above the 10% mark for a median gain in the sector of 3.49%, with a 74.03%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 58 trading days out at 4.73% on a reduced 70.13%-win rate, so consideration should be given to hold times.

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

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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.