Saturday, November 30, 2013

UTIL Utilities Weekly Charts Sideways Symmetrical Triangle

The old-timer's pay attention to the utilities sector as a market guide. A technical anaylsis book from decades gone by that should be in everyone's library is Norman G. Fosback's Stock Market Logic which describes the use of utilities as a forecasting tool. The book has a red cover that is easy to spot. For the more significant broad market downturns, the utilities sector will typically peak and roll over first, from zero to 2 months ahead of time. The utes peaked 6 months ago, but, as with many other indicators, the Fed and other central bankers have destroyed price discovery to the point that market relationships are not working as expected. There are 2 things to monitor; first the closing print from 15 weeks ago, and second, the 50-week MA. If utes are in a weekly uptrend (based on the closing print 15 weeks ago), all is fine in the broader market, but when the utes slip into a downtrend, that spells trouble ahead. If the weekly downtrend continues, price will then test the 50-week MA. Keystone calls this the trap-door since the broad markets will typically drop substantially if this level fails.

Counting 15 weeks back on the chart you see the brown circle at 483. This is a very important number for all of next week. Utes have been in a weekly downtrend recently, up until last week, and will only return to the weekly downtrend if price moves under 483. The 50-week MA is 490.56 and price has already fallen through. Usually, the weekly trend will turn bearish first, then the 50-week will fail, but as evidenced by the chart, a long-term sideways move is occurring which creates a 50-week MA failure now, but price is above the price from 15 weeks ago indicating that the utes are in a weekly uptrend. For the ongoing market action, the 483 level, the closing print from 15 weeks ago, can be considered the trap-door. Bad things will happen to equities if UTIL 483 fails in the days ahead. If UTIL regains the 50-week MA at 491+ and moves higher, the bulls rule and the SPX is on its way to 1820's.

The small rectangle shows that for the next 7 weeks, the bulls have an easy number to beat to maintain a weekly uptrend, as long as price stays above the 475-485 area. If utes fall through this 475-485 zone, the long-awaited broad market correction will arrive in force.  The sideways symmetrical blue triangle is in play. The two vertical sides are 75 handles and 110 handles. A breakout for happy bulls is from 500 so the upside target is 575-610. A breakdown for happy bears is from 485 so the downside target is 375-410. The long-term chart shows the H&S pattern break down in 2007-2008, then the inverted H&S pattern that nailed the 530-540 top, now the sideways symmetrical triangle that will result in one side the winner, the other the loser. The importance of the 483-485 level cannot be understated; if 483-485 fails, the markets are going lower perhaps substantially lower. If the bulls hold the line and send UTIL above the 50-week MA at 490.63-ish, equities continue higher.

If utilities break down, and fall under the 475-485 zone, the broad indexes will move into a bear market that will last a few weeks and months, maybe longer. Note how over the last 3 years, price remains above the 50-week MA. A mean reversion is needed where price spends an equal amount of time below the 50-week MA moving forward. A reasonable expectation is that a fight will occur at UTIL 483-485 probably on Monday or Tuesday, where price will either bounce, or die.  Caesar will rise at 483-485, extend his arm, and provide a thumbs up, or thumbs down, for markets moving forward. 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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