Sunday, June 5, 2016

UTIL Utilities Weekly Chart Prints Record High Negative Divergence

The utilities are watched closely, especially by the old-timer's, for market directional clues. The weekly trend in utes based on looking back 15 weeks ago, and, the 50-week MA now at 601, are two key metrics when assessing the utilities weekly chart. Utes remain in a weekly uptrend since the weekly closing high remains above the high from 15 weeks ago. As the coming weeks play out, this upward trend will be tested. Counting back 15 weeks, UTIL is at 619 (pink line) so this level is key for the week ahead, then the next week, the lookback number is the blue line at 633, then the next week is 647. So UTIL may not drop to 619 this week, however, for the week of 6/13, perhaps price will fall under 633, or, for the week of 6/20, price may drop under 647. Utilities will become more important going forward.

The 50-week MA is at 601 way under the price at 672. Big trouble would be on tap for markets if the 50-week is lost; it would have a trap-door effect on the stock market. For now, however, the bulls are happy setting a new all-time record high for UTIL at 675.46. Strike up the band. Hand out the party hats. The brown W pattern bottom formed between 540 and 605, a 65-point difference, so once the breakout occurs early this year, the target is 670 (605+65) which is now achieved satisfying the W pattern.

The volume circles show distribution taking place with large sell weeks following an up week. This is the so-called smart money handing off their shares to the bag-holding suckers. Joe Sixpack reads a financial book he found at the Thrift Shop down the street and proclaims himself an instant expert i financial matters. He tells all who will listen to buy utilities as a safe defensive place to park money and you also earn a dividend while you wait. However, throw out that old playbook.

Economic and business cycles are torn asunder by the obscene Keynesian monetary polices of the Federal Reserve and other global central bankers. The Fed has twisted markets into knots; no one really knows the true value of anything anymore after all asset classes have been artificially pumped higher for over seven years. Ma and Pa Kettle, Aunt Edna, the doorman and Joe have all taken their life savings and placed it into utilities. They will likely have their heads handed to them in the weeks ahead.

Price is a higher high and the red lines show universal negative divergence across all indicators. It is a very weak record high. The MACD line cross is negative; keep an eye on this over the next couple weeks. Utilities have been moving choppy sideways for the last three months. The expectation would be for utilities to receive a neggie d spankdown over the next week or so, then some recovery due to the sideways nature of the indicators over the last month, and then likely a roll over to the downside. If price keeps sneaking out further highs, watch the thin red lines shown through the right margin; if the indicators remain under these thin red lines negative divergence remains, and this would only lock in the downside going forward.

The monthly chart indicators are not excited about the record high print either and is open and agreeable to softness in price ahead. The projection would be for UTIL to top at this 670-680 level in the coming days and pull back perhaps to 650-ish, then perhaps a little bounce then roll over. So utes would be expected to top out anytime ahead say in this June-July time frame on this weekly basis.

If utilities move lower, that is a bad sign for stocks which will move lower at the same time, or top out within 8 weeks and follow utes lower. Watch those 15-week lookback numbers above because that will tell you that trouble is on the way, or not.

The neggie d indicates that utes should receive a spankdown very soon. Keystone has no position in utilities currently but is considering a long in SDP, which is a 2x inverse short against utilities (SDP goes up if utilities go down) but the ETF is thinly traded and a dangerous leveraged play that is very speculative. As would be expected, SDP displays attractive positive divergence and oversold conditions the mirror image of the UTIL and XLU charts. XLU would be under consideration as a short. Utes gapped higher last week so it is likely best to let any near-term momo play out for a couple days. For the weeks ahead, start paying attention to utes. 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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