Although US stocks fell on Tuesday, ending a five-day winning streak, for savvy traders who knew where to look, there was still one sector that was delivering value and significant gains. The index may have fallen 0.5%, but utility sector ETF proxy, the Utilities Select Sector SPDR® Fund (NYSE:) rose 1.7%.
Yesterday's second best sector performer was up just 0.8%, half that of utilities.
For some time, the drab but highly defensive utility sector has received little attention, except perhaps from retirees seeking above-average dividend yields, a staple of many utility stocks. Most investors have focused on the value-versus-growth scrimmage that has taken place as markets sway between optimism about an economy reopening versus concerns about rising pandemic levels around the world.
However, yesterday's outperformance by utilities points to a possible new entrant in the current market battle. Was this a one-off, or maybe a strategic shift is starting? We think the latter.
We've cross-examined the industry's performance and believe there is a subtle but real shift at play. Not only did the ETF outperform on Tuesday, but it is one of four sectors that added at least 2% both weekly and monthly.
Furthermore, while the other sectors that rose at least 2% varied, utilities were the only sector to consistently accelerate 2% during those periods.
This is what that dynamic looks like on the map:
XLU Daily
XLU broke out upwards from its bearish channel since the April high, which may not only mean that the bearish (red) channel was just a temporary correction amid the broader (blue) bullish channel since April last year , but a faster rising channel may develop (green), which would complete when the price peaks again.
The MACD created a bullish cross right after the price bottomed out in the red channel, while the RSI bottomed out along with each of the two upward breakouts of the same red channel, showing that momentum was supporting the price.
Trading Strategies
Conservative traders should wait for the price to reach its previous June 16 high, where it is now encountering resistance for the second time, then retrace its steps and continue show support , before entering with a long position.
Moderate traders would wait a long time for the same move as conservative traders, but for closer access, not necessarily confirmation.
Aggressive traders are allowed to buy at will, provided they are prepared for whipsaws. Money management is key. Here is an example of a trading plan:
Trade sample
Admission: $66
Stop Loss: $65
Risk: $1
Target: $68
Reward: $2
Risk: Reward Ratio: 1:2
Author's Note: This is an example, not the actual analysis. It's in the body of the text. If you haven't read and understood it, don't trade. The monster is not the only way to approach this trade, and it may not suit you. Imagine that you have already lost it before entering into a transaction. If you can't stand that, don't trade. Trading is nothing more than "happiness management", and we cannot know the future. What we're trying to do here is get on the stats side. That means the more trades adhere to statistical results, the more likely you are to have success overall, rather than per trade. Your budget, temperament and timing affect the results of your trades. Until you learn how to adjust them, follow our examples, to learn, no profit, otherwise you will get neither. Guaranteed. No money back.
