UTIL Utilities Weekly Chart

The utilities provide valuable insight into the intermediate and long-term stock market direction. The 15-week trend and 50-week MA are key tools for forecasting the stock market. Typically, you would expect the utes to roll over at the same time or a couple months ahead of when the stock market rolls over to the downside if the market plans to trend lower for weeks and months ahead.

At the start of the year, the utilities were dropping like rocks and the stock market then peaked in late January and fell apart. It was all systems go for long-term weakness but the Federal Reserve and other global central bankers always step in to save the day and February was no different.

The odd thing with the current stock market selloff is that the utilities have been trending higher for the last five weeks, not lower. Not even going down coincidentally with the broad stock market. This hints that the sustainable intermediate and long-term stock market weakness may not quite be here as yet. Stocks may have one more relief rally in their belly. S&P futures are down -42 as this message is typed on Tuesday morning, 10/23/18, before the opening bell.

The price from 15 weeks ago determines if utes are in a weekly uptrend or downtrend and this in turn dictates the broad stock market direction. The price ending the week 15 weeks ago is 721.87 (purple circle). UTIL is at 742 so it is in a weekly uptrend which is bullish for the stock market. The comparison number for next week is the brown circle at 718.20. The week after is 721.60 and after that 728.81. If the stock market was beginning its long-term cyclical weakness now, the UTIL should be in a downtrend.

The 50-week MA is at 710. UTIL is at 742 well above this key level that Keystone often calls the trap-door. The stock market is prone to go into free fall when the UTIL 50-week fails.

So the two key parameters, the 15-week lookback and 50-wk MA, are bullish. This hints that the stock market should recover with a strong relief rally and at that time, say a couple weeks or so out, we can see if UTIL rolls over and begins dropping. Perhaps it is different this time and stocks may tank regardless of the buoyancy in utilities?

Keystone's key cyclical market signal, the 12-month MA at 2747, holds the answer. This is the cliff-edge for the stock market. If SPX 2747 fails and price remains below 2747 going forward, the stock market will definitely be in a cyclical bear market for weeks and months, perhaps years, ahead. The utilities falling off a cliff and tumbling straight down right now would support the bear case.

Considering the bullish utes above, however, the expectation would be for the SPX 2747 level to hold, even if it fails for a day or two, and the S&P 500 would be expected to recover with a relief rally. It will be fun to see how it all pans out this week.

Note the W pattern bottom that formed early this year. W's are strong bullish patterns. The base is at 660 and breakout line at 710 so the difference is 50 and the upside target after price broke up through the 710 level, which is also the 50-week, is 760. The high is 748 so there may be a few more points of upside needed that may take another couple weeks. 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.

Note Added on Wednesday, 10/24/18, at 2:42 PM EST: Bingo. UTIL is above 758. That is close enough to satisfy the W pattern target.