Wednesday, May 29, 2013

UTIL Utilities Daily Chart Textbook Bear Flag

Here is an update of the utility two-leg bear flag pattern we have been watching for the last couple weeks. Unfortunately, Keystone sold the SDP (thinly-traded inverse utility ETF) too early. This chart is great to look at from a TA (technical analysis) perspective especially for all of you budding chartists. The red rising wedge, overbot conditions and negative divergence (red lines) are a textbook top forecasting a spank down, which occurred. This is where the SDP trade was entered. Note how price dropped and then danced along the 50-day MA as it decided on direction.  The initial drop from 538 to 510 is 28 points difference. The consolidation flag move, where price moves sideways with some upward buoyancy then occurs, then the second leg begins down from 518. This targets 490 (518-28 = 490). Price bounced directly off the 490 target completing a textbook bear flag pattern.

The 485-490 is important support.  The indicators are weak and bleak (red lines) but the histogram and stochastics want to see a bounce. The stochastics are oversold. So a bounce may be on tap but the RSI, MACD line and money flow want to see further weakness resume after any bounce occurs.  Keystone's trading algo, Keybot the Quant, identifies 481 as a key level currently. The broad indexes will dramatically weaken if/when 481 fails. Note the confluence of Keystone's number and the 200-day MA at 480. There will likely be a showdown at 480-ish that determines the fate of the overall markets moving forward. Many old-timers use the utes as a key forecasting tool for markets. The higher yields are causing much of the weakness in utilities, telecom, REIT's and other interest rate sensitive stocks and indexes. When utilities lead the broad market lower it typically signals that the move down will be more substantial than many expect. The 20-day MA is about to fall through the 50-day MA which is bearish. Watch 480-481 moving forward; bulls are fine if they maintain this support, however, if 480-481 fails, there is big trouble ahead for equities. If 470 fails, markets will be moving strongly lower. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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