UTIL Utilities Weekly Chart; Rising Wedge; Overbot; Negative Divergence Developing; Upper Band Violation; Aroon Pegged at Max 100 and Min 0

As fears of a global economic slowdown persist, and the US-China trade war lingers, the perceived safety and dividend plays including utes (UTIL and XLU), REIT's (VNQ), telecoms (T), consumer staples (XLP, PG, etc...) and Treasuries (higher prices lower yields) explode higher. This is a bit surprising since the expectation was for much of this to already be priced-in. Keystone remains short the utilities but is underwater. Things looked good a month ago for the downside but the blind buying in utilities sends UTIL and XLU to record highs.

Utilities are key since they either lead by up to two months, or move coincidentally, lower with the broad stock market when a significant market top is occurring. When utes are weak and tumbling lower, it tells you that the overall stock market is in serious trouble. If utilities remain buoyant or continue higher, any pullback in the broad stock market will likely be short-lived.

Utilities love lower rates since they fund large projects worth billions of dollars over many years. The flight to safety, however, appears to be dominating the buying. Traders and investors, perhaps after reading a couple of financial books at the bookstore, are buying the perceived safety plays thinking the economic cycle is running out of gas. Look at the big buying volume candlesticks over the last 5 weeks. Timmy Trader read a Peter Lynch book and is now buying utilities and staples with both fists.

These are not your grandfather's markets. The central bankers, with their obscene Keynesian money-printing, have destroyed all price discovery as well as the economic cycles. No one knows what any asset is truly worth anymore; all are pumped higher on one-decade of easy money. The world remains awash in liquidity so folks pick up money laying on the ground and buy stupid stuff as well as overpay for all stuff.

Thus, utilities, staples, REIT's and Treasuries are all pumped-up into the stratosphere due to the central banker largess, but the trading community continues whistling past the graveyard pretending that markets are functioning normally and now is the time to buy defensive stocks. Look at the charts! Utes, staples, etc...., are all at record highs like the broader stock market (these sectors are not underperforming beaten-down areas that would be more attractive when the economic cycle runs out of gas; their prices are pumped higher like all other assets on the central banker money printing). Good luck to everyone.

As Norman Fosback taught many moons ago, watch the 15-week lookback price for utilities and also the 50-week MA. These two parameters are excellent predictors of cyclical stock market behavior. Count back to the weekly close 15 weeks ago and compare that number to the current number. If the current price is higher, the utes are in a weekly uptrend and ditto the stock market. If the current price is lower, the utes are in a weekly downtrend and stocks will be trailing lower or about to begin dropping lower. Price was in that 800-ish area 15 weeks ago so you can see that the utility bears have their work cut out for them going forward. Treasury yields are rising this morning (lower prices higher yields) so utilities may get slapped around a little bit today.

The 50-week MA is important since utilities have typically already fallen into a weekly downtrend when this occurs. If the 50-week gives way, many times it is like a trap-door for equities, and the SPX could easily lose 20 to 50 handles in a heartbeat.

That is a wicked red rising wedge pattern. As you know, the collapses from rising wedges can be quite dramatic. The chart indicators are in negative divergence except for the RSI that pokes its head up into overbot territory. This is very strange since if the RSI was heading higher, the MACD line typically always is heading higher. The MACD is in neggie d although it is climbing above its red moving average line. So the expectation is for a top although the RSI may jog it for a couple weeks (down one week, then a recovery back to current prices the following week, then extended down). If utes fall today in this Friday trade, since it is a weekly chart, you may see the RSI not poke higher than the previous peaks which will tell you the top is in now on the weekly basis. A lot depends on all these knuckleheads buying perceived safety and defensive plays when in fact all they are doing is covering themselves with a fig leaf.

Another oddity is the ADX. Considering that price has gone parabolic, the ADX should be in a beeline higher to 35 now. Instead, it is dropping down to 23 telling you that the move higher is NOT a strong trend. Very odd with the price action. Price has violated the upper standard deviation band so the middle band, also the 20 MA, at 809 is on the table and this will place price in the neighborhood of testing the highs from 15 weeks ago.

Look at that Aroon. That is a rarity, like spotting an albino deer or seeing a bee swarm move its nest. The happy bullish blue Aroon line is pegged at the maximum possible 100.0 level. It has nowhere to go but down (bearish for utes). The sad bearish red Aroon line is at the minimum possible 0.0. It has nowhere to go but up (bearish for utes). Boy, there must have been a long waiting line at the library for novice investors reading Peter Lynch books and other outdated financial guides explaining economic and business cycles and cyclical versus safety plays. They should read more Keystone and less Lynch. If they keep chasing into utilities they may end up lynched.

If you bot utes because you read an article on the internet that tells you what to do late-cycle, realize that this is all fantasy land after nearly 11 years of Fed, ECB, BOJ, BOE, RBA, PBOC and other global central banker intervention. Keystone remains a seller of utes going forward. If utes begin trailing loiwer, it tells you that stocks may be in trouble in the weeks ahead. If the stock market and utilities then begin falling lower in unison it tells you that dark days are ahead for equities. If utes remain flat or buoyant, the stock market will continue hanging in there hoping for resolution in the US-China trade talks and expecting central bankers to print money forever. 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 Saturday Morning, 8/30/19: UTIL finishes the day flat. Utilities remain well bid. As investors worry about the future, they flock into perceived safe haven plays such as utes and staples but most are too stupid to look at a chart to see that the prices have already gone parabolic due to many years of central banker largess. The perceived safety and defensive plays are pumped to record highs like all other stocks due to the Keynesian easy money. Anyone chasing XLU and XLP higher is likely going to have their perceived-safety fig leafs ripped from their bodies. Note the RSI is not at a higher high to end the week it is at an equal high as the previous two highs as price has gone parabolic over the last few months; this is negative divergence, price is running out of gas in the weekly time frame. Ditto the daily chart. Utilities may be a big story next week. Watch utilities very closely going forward. XLP, staples, are topping out now and set up for a good shorting opportunity; the weekly chart is in neggie d.