UTIL Utilities Daily Chart Fibonacci Retracements Potential Downside Leadership

Utilities went parabolic in March and April, behavior more expected from commodities or gold or silver, rather than slow and steady utilities. The Fed and BOJ easy money is flooding into dividend stocks creating new asset bubbles, the utilities are a poster child. UTIL jumps from 440 to 540, about 100 handles, +23%, in only five or six months time. Utes were moving higher at a pace of 1% per week, 4% per month for one-half year, truly phenomenal, all fueled by money-printing where traders are chasing divvy's. All parabolic moves end the same way with a dramatic retracement. The price move higher over recent days is likely a dead-cat bounce. The thin green lines show a potential H&S pattern in play with head at 540-ish, neck at 510-ish and target at 480-ish which forms a confluence with the 200-day MA and 62% Fibonacci retracement in the 475-480 area.

The blue lines show the Fib retracements and note how the 32% and 50% retracements are directly at the late July and October tops adding street cred to these key support levels. Note the green lines for the indicators from late 2012 into early April showing long and strong profiles wanting to see higher highs in price. Not any more. The red lines show the negative divergence that was highlighted in late April identifying the top. The important aspect of this chart is the utilities leadership in the markets. For decades, one of the key tells of an extended downside move for markets is when the utilities roll over and lead lower. The old-timers follow this concept and the 10-month and 12-month MA's are key moving averages to monitor to determine overall market strength (reference a monthly chart for UTIL). The utilities are programmed into Keybot the Quant, Keystone's trading algorithm.

If utes move lower coincidentally with markets, the downside is typically limited. If utes lead, the potential exists for a stronger market sell off. The utilities sector was the only sector that peaked ahead of the September-October top last year followed by a lower high in October when the other sectors and equity markets in general topped and rolled over. The utilities led lower and this action must have scared the Fed sufficiently to replace Operation Twist with QE4 Infinity and Beyond in December which powers the markets higher in 2013. The current behavior is interesting since the utes are once again headed lower as the balance of the market and other sectors continue to print new highs day after day. Utes typically signal market downside ahead from zero to a couple months after the peak occurs. UTIL peaked about three weeks ago. 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.