Utilities, UTIL, dropped at the open which is bear favorable. The further the bears keep UTIL under the critical 453.69 level, the greater the broad market weakness. SPX is down -0.53% and Nasdaq is down -0.61%. This is bear-friendly. Tech is now leading to the downside so this gives the market selling some street cred today. CRB remains above 309.50 so the market bulls can seek solace there today, so far.
Note Added 2/6/12 at 9:57 AM: The SPX is down -0.24% and the Nasdaq is down -0.31% so tech continues to lead the downside today continuing to supply bear street cred. UTIL at 450, bear-friendly, and just failed the LOD. Volatiilty, VIX, is up almost 5%. With this type of jump in the VIX, the small downside in the SPX is surprising, a drop of 0.5% to 1.0% would be more expected for the SPX than a paltry quarter percent. One of these should adjust, either the volatility dropping again, or the SPX will increase the selling activity.
Note Added 2/6/12 at 10:52 AM: The Nasdaq, technology, continues to lead the downside today so the selling remains. The TRIN is 1.17, verifying the sell side but nothing drastic, more of a steady-eddy selling day. Same-o with NYAD moving down only to -1500, thus, continued steady-eddy selling pressure would be anticipated. Once a number below -2000 is hit, that will show that enough negativity entered the markets that a move up is required. For now, the bears are keeping steady negative pressure on the markets.
Note Added 2/6/12 at 1:20 PM: The Nasdaq leadership to the downside petered out so the move down for the broad markets ran out of gas. The TRIN has dropped to 0.86, a low reading that actually favors the market bulls today. The action shows a lot of euphoric underlying bullishness where traders want to jump in on the slightest pull back to buy. The sentiment remains uber bullish, after all, markets never go down, right? Volatility remains on the upside today while markets are directionless, meandering sideways thru 1327-1344 today. The LOD is 1337 no where near the 1326 the bears need to ignite serious selling, and the HOD is 1344 and change, not above the 1345 which will trigger another bull leg higher. UTIL is at 449.53, drifting lower, which is bearish. CRB is 313.88, four points above the danger level at 309.50. Thus, a little bit for everyone, one thing the bear's way, one thing the bull's way, etc... Stay on guard, volatilty, VIX, is moving across 17.90 today so use the direction it moves as a clue for broad market direction, 18 and higher and bears will growl, falling under 17.90 and moving lower will provide the SPX that number over 1345.
Can you discuss using the utility index as a broad market indicator for market weakness? Would it not be typical to see sector rotation out of the safer utility stocks and into riskier stocks during advances?
ReplyDeleteThanks LeeAnn
Hello LeeAnn, type UTIL into the search box above and go back to read the previous posts concerning the utes. In general, what you say is correct, in relative terms, utilities and consumer staples move up as traders become worried since they are considered safer havens, like treasuries, but in a market downtrend, it does not make much difference, all stocks drop, utes and staples simply tend to drop less.
ReplyDeleteBut the reason Keystone discusses the utes often is due to using the utilities as a forecasting tool for markets as many old timers continue to do so. This simply involves two parts, first, if price drops under the weekly print from 15 weeks prior, the utes are in a weekly downtrend and this forecasts weak markets ahead. UTIL can be used as the vehicle to watch. The broad markets typically turn down coincidentally or within a few weeks time once the utes turn sour. UTIL turned into a weekly downtrend as of last week.
Then for part two, once the utility price fails the previous print from 15 weeks ago, then watch the 50-week MA level, now at about 434 for UTIL. If the 50-week MA fails, Keystone uses it as a trap-door signal for markets where the broad markets are capable of collapsing at anytime. UTIL is printing 449 as this is written so it is forecasting bearish markets ahead, but the bulls can take solace in the UTIL now remaining 15 points above the 434. This drama with the utilities will likely increase in intensity moving forward so watch them from here forward.
The Stock Market Logic book, by Norman Fosback, it has a red cover, has a chapter on utilities that discusses this old time 15-week lookback technique for utilities which may provide additional help.
thanks for explaining in great detail. This has certainly been a difficult market to invest/trade in due to the whipsaws and now, the stealth QE liquidity flows. Thank you for taking your time to keep up with your detailed posts.
ReplyDeleteLeeAnn