UTIL Utilities Weekly Chart

It's time to take a look at the utes again to see if any potential stock market downturn would have strong legs lower, or not. The uber low CPC and CPCE put/call ratios signal rampant complacency and a stock market selloff set to begin. In past pullbacks, Keystone has always referenced the utilities to determine if the selloff has serious legs and will lead to a correction and worse, or, if it is a more run-of-the-mill milktoast selloff of a couple percent or so that quickly bounces back to new highs.

For UTIL, two tools are key; first, the weekly closing price 15 weeks ago since it determines if utes, and therefore, the stock market, is in a weekly uptrend (bullish) or downtrend (bearish) and second, the 50-week MA cross.

At 838, price is far above the 50-week MA at 795 currently so this is an ongoing bullish signal for stocks. Looking back 15 weeks ago to the blue circle, UTIL was at 816 so price is above and the weekly uptrend in utilities remains in play. You have to watch these numbers closely since any failure will dictate major trouble ahead for the stock market.

For the 15-week lookback numbers, watch 815.76 for this week, 817.87 for next week the week of the 11th, watch 826.30 for the week of the 18th and watch 831.22 for the week of the 25th which is Thanksgiving week. If UTIL falls below these levels, utilities will slip into a weekly downtrend and this forecasts gloom for the stock market ahead. Bulls must keep the utes above these numbers.

Another key aspect of the utilities in relationship to the broad stock market is that UTIL will roll over either coincidentally (at the same time) as the stock market or up to 2 months before the stock market rolls over. If utilities are trailing lower in front of the stock market rolling over and beginning to selloff, this is an ominous path ahead for equities and the downside will be significant not a small one.

The chart shows the utes peaking at the end of September about 6 weeks ago and trending lower ever since (although not officially in a weekly downtrend as dictated by the closing weekly price 15 weeks ago). The rupture of the 20-week MA support at 843, which now becomes resistance, is a significant event. Bulls must push price back above 843 pronto, or they are in big trouble.

The red lines show the universal negative divergence that spanked price lower off the top. The RSI and stochastics were overbot agreeable to a pullback which occurred and UTIL falls out of the multi-week upward-sloping channel. The Aroon red line is at zero with nowhere to go but up and the green line is overbot nowhere to go but down both parameters are bearish going forward.

The stock market is expected to roll over due to the excessive complacency and euphoric joy. Considering the trend lower in utes for over one month now, if the stock market begins selling off and dropping like a rock, the downside may be quite significant even down towards -10% correction territory. Of course the numbers provided above will need breached for confirmation of this doom and gloom forecast. Watch to see if the weekly trend goes negative. Think of the UTIL 50-week MA as a trap-door for the stock market. If it fails, stocks could potentially drop into free fall. At the least a drop of about 30 handles on the SPX would be expected in quick order when the UTIL 50-week fails down the road. Pay attention to the utilities here on out.

Keystone remains short the utilities. Utes are slipping as Treasury yields climb higher. 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.