UTIL Charts Negatively Diverged - Spankdown in Utes Coming
UTIL Daily and Weekly Charts:
As Keystone forecasted the rolling top for the broad indexes over the last three months and we watched the markets sell off, remember how he kept mentioning the elevated utilities sector and how the markets needed to come back up since a substantial market move lower should be led by, or at least conicidental with, the utilities sector? The elevated utes were a fly in the bear's ointment. The SPX came back up today to 1329 from the low in the 1260's three short days ago. The markets could not move substantially lower since the utes were not part of the party. The utes closed at a 3 1/2 year high today.
Now the utilties sector is setting up for the bears and if it receives the smack down the charts forecast, and heads lower, this will be very ominous for the broad markets going forward. The daily chart shows a bull flag vibe in place that would forecast another ten points higher for UTIL but the negative divergence should override any further upside. The green lines for RSI and money flow show that price wanted to print a higher high than early May (green circles) and we now have received this higher high. Note the indicators on this daily chart now showing the universal negative divergence in place (red lines). Over the last week price has received momo so the move off the top here should occur with a sharp down, then back up, then roll over.
On the weekly chart, there are two critical levels to watch; first, watch the black line at 453.5-ish for the next six trading days. If price fails thru 453, the broad indexes are in extremely serious trouble. The red line represents a trap door for the broad markets. If UTIL falls thru the 50-week MA at 447-448, the broad indexes will have already been lost and a major waterfall flush should occur in the markets within one-half hour of this failure. Now you understand why the bulls have kept the utes elevated at all costs--the consequences are major market failure. Note the pink rising wedge and oversold money flow that want to see a price smack down. The green lines for RSI and money flow wanted to see a higher high in price once more besides early January (green circles) and we have now received this higher high. Note how the indicators now show universal negative divergence (red lines). Combining the negative divergences on both the daily and weekly charts forecasts a smack down on tap at any time. This is why Keystone is now in SDP (a thinly-traded inverse utilities ETF). There are other ways to play such as shorting XLU, or shorting individual utility names or also playing the options market.
The takeaway is first to watch if the negative divergence creates the spank down. Then watch the price action in relation to the black and red line on the weekly chart, the red line means 'run for your life' from the markets. The seriousness of the utes rolling over in the days and couple weeks ahead and leading the broad markets lower cannot be understated, it will lead to a major market sell-off as well as a substantial bear market moving forward.
For UTIL charts use search box above for keystone speculator.
Thought about getting into this due to the safety of utilities, and the dividend. This being at a record high will make me wait, especially considering the euro-crisis. Why be in a hurry to buy anything when you can probably get everything on sale by Sept?
Get in, and get the 4% dividend. The nice thing about XLU (and utilities in general) is they tend to lag the overall economy. If things continue to improve, the dividends will go up, and this thing will be in the low 40's in about a year. If things go to crap, then you are in an ETF that is still drawing 4% and lags the downturn. If things really hit the skids, this will go down minimally (as money moves to safe utilities), and you can move it over to TNA at that time.