UTIL Utilities Weekly Chart; 2-Leg Bear Flag; Utilities Weekly Trend Teases Failure

The utes are important for intermediate and long-term planning. As viewers have seen for the last few years, Keystone uses the utilities to determine if a given stock market pullback has extended multi-month and multi-year downside, or not.

The weekly trend of the utilities dictates whether the stock market is in a healthy uptrend, or not. The closing price from 15 weeks ago is used as the comparison number. The other important number is the 50-week MA which is a trap-door for the broad stock market.

For this week's assessment of the weekly trend, the closing price 15 weeks ago was 845.52 (brown circle). UTIL is at 852.58 only 7 points above this critical bull-bear line in the sand. If UTIL fails below 845.52 this week, the utes slip into a weekly downtrend and this will create serious negativity in stocks. For next week, the week of 12/16, the 15-week lookback number is 848.30 (orange circle). For the week of 12/233, the lookback comparison number is 846.99 (blue circle) and for the week of 12/30, the lookback number is 862.90.

Thus, for the next 13 trading days, through Christmas, UTIL must not fall below this 846-848 support level. If utes do fail below 846-848, the stock market is in big-time trouble and not only for the near-term but potentially for the long term (many months even a year or three or more). Note that for the last week of the trading year, the last week of December, UTIL must be above 863 or the stock market is in trouble. So the table is set.

The pricing behavior is following a two-leg bear flag pattern since the September top at 880. The first leg down is from 880 to 835, a difference of 45 points. UTIL then performs a sideways consolidation move with a slight upward bias which is textbook behavior for this pattern. Now it is time to make a decision. If price falls from here, say starting at 855, that will target 810 for the downside to complete the second leg of the pattern. Note that price is respecting the 20-week MA support at 851. If this 20-week fails, it tells you that the bears may win going forward. Bulls need to keep price above the 20-week.

If stocks rally, watch the utes. UTIL must be in a weekly uptrend, as defined above, to prove that the stock market can continue higher. If stocks rally but the utes slip into a weekly downtrend, the stock market will weaken. If stocks rally, and UTIL remains above that 846-848 gauntlet over the next 3 weeks, and then above 863 as the month ends, the bulls are fine and will be singing songs and throwing confetti in early 2020. It's that simple. It's not rocket science.

If utilities slip into a weekly downtrend, that means the two-leg bear flag pattern is playing out. The downside target for the pattern is 810. The other critical parameter for utilities is the 50-week MA now at 806 and rising. You can see that over the next couple weeks, the 50-week MA price will float up closer towards the 810 bear flag target. Strong price support is also in the 815 area. Thus, the 806-815 area is a landing zone for UTIL and may act as a magnet to pull price lower.

If the 50-week MA at 806 fails, all hope in the stock market is lost. Once this occurs, a trap-door opens and the S&P 500 will likely dump a quick 30 handles within an hour or two of the 50-week MA utility failure. The stock market could go into a crash if the 50-week MA fails. So there is lots of fun stuff to watch ahead.

Is the above analysis clear as mud? In summary, UTIL must remain above 846-848 over the next 3 weeks, and above 863 at month-end, for the broad stock market to move higher. If instead a failure occurs, and utilities slip into a weekly downtrend, the stock market will be selling off going forward. You can forecast the time extent of the potential selloff by monitoring if UTIL remains in a weekly downtrend, or not. If stocks selloff, but investors flock into the perceived safety of utes, and UTIL rallies higher, regaining and maintaining the weekly uptrend, the stock market will also recover going forward.

If UTIL slips into a weekly downtrend, stocks are toast and if the 50-week MA fails, the stock market may potentially go into a crash scenario. Today, Federal Reserve Chairman Powell speaks and tomorrow morning ECB President Lagarde speaks. The central bankers are the market so these two top-tier global central bankers will dictate the path ahead.

The US-China trade deal remains up in the air with new tariffs set to start on Sunday, 12/15. Dictator Xi and Soybean Donny only have four days to reach a deal. China wants a rollback or delay of tariffs before a deal is reached but if this is the agreement, King Donny's wings will be clipped and his tariff leverage would have peaked out. It is hard to believe that President Trump would give up this tariff leverage but who knows?, he is a political animal like all the other Washington bureaucrats, so Trump's decisions are based on what helps his re-election campaign.

Watch the utes going forward. If you are long the market and watch the utilities roll over this month and fail, you will likely lose one-half of your money over the next year or two. If you are long the market and UTIL maintains the current weekly uptrend staying above the levels listed, you are fine for a few more months going forward.

On Friday at 4 PM EST when the trading week ends, see if UTIL is above or below 848.30 (the 15-week lookback number for next week) since this will give you a heads-up on stock market direction for Monday morning. 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.