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Chart Of The Day: Utilities Sector About To Flip From Under- To Out-Perform?

By Investing.com (Pinchas Cohen/Investing.com)Stock MarketsOct 21, 2021 21:25
ph.investing.com/analysis/chart-of-the-day-utilities-sector-about-to-flip-from-under-to-outperform-94823
Chart Of The Day: Utilities Sector About To Flip From Under- To Out-Perform?
By Investing.com (Pinchas Cohen/Investing.com)   |  Oct 21, 2021 21:25
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Global stocks were slumping on Thursday after China's Evergrande Group (HK:3333) failed to sell a 50.1% stake in its troubled property management division to an industry rival in order to raise cash to pay debts. That situation has already been worrying investors for weeks. 

Plus, we're seeing the highest inflation in 13 years and analysts anticipate it will keep climbing.

At the same time, we've been noting a change in a sector rotation that hasn't been getting a lot of attention. Utilities, as illustrated by sector proxy the Utilities Select Sector SPDR® Fund (NYSE:XLU), have been consistently underperforming in just about every time frame—weekly, monthly, 3-months, 6-months and year-to-date.

Every timeframe that is except daily. Yesterday, not only did Utilities outperform, they jumped 1.6%, making them the leader among the 11 sectors on the S&P 500.

Could this be the start of a paradigm shift? Here's what it looks like on the daily chart.

XLU Daily
XLU Daily

The sector completed a small H&S bottom, with an implied target nearing $69.

While that appears bullish in the short term, the weekly chart tells a more complex story.

XLU Weekly
XLU Weekly

Via the broader view, it looks as if what could be the development of a weekly H&S top is in process. The uptrend, marked by the rising channel, is challenging seller resistance, those traders who remember the ETF's 38% plunge suffered in just about six weeks.

Therefore, expect volatility, which could be excellent for traders if they operate according to preset and coherent trading plans to which they are committed.

Trading Strategies

Conservative traders should wait for the long-term trend to decide on a direction before risking their capital.

Moderate traders would wait for the ETF to retest the neckline of the small H&S bottom.

Aggressive traders could enter a long position now, provided they accept the higher risk that goes along with the higher reward they expect by moving before everyone else. Money management is critical. Here's an example:

  • Entry: $66.50
  • Stop-Loss: $66.00
  • Risk: $0.50
  • Target: $68
  • Reward: $1.50
  • Risk:Reward Ratio: 1:3
Chart Of The Day: Utilities Sector About To Flip From Under- To Out-Perform?
 

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Chart Of The Day: Utilities Sector About To Flip From Under- To Out-Perform?

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