The main reason for this rotation was that the Dow utility average became extremely overbought on its weekly chart. At the high the 12x3x3 weekly slow stochastic reading was 97.23 on a scale of zero to 100, where readings above 80.00 are overbought.
The Dow utility average peaked between its quarterly pivot at 524.17 and its annual risky level at 540.37 then tested its monthly pivot at $509.53 on Friday and Monday. You can trade the utilities sector using the Utilities Select Sector SPDR Fund ($39.62). Note that XLU has held its 50-day simple moving average at $39.46 with my monthly value level just below at $39.09. After testing $41.44 on April 30, XLU was pulled back down due to the power of the annual and quarterly pivots at $40.52 and $40.27. My semiannual value level is $36.48 with an annual risky level at $43.47.
Chart Courtesy of Thomson/Reuters
The U.S. equity markets continues to trade under the cloud of a ValuEngine valuation warning with 68.6% of all stocks overvalued, 29.8% overvalued by 20% or more. We continue to show that 15 of 16 sectors are overvalued, 14 by double-digit percentages including the utilities sector overvalued by 10.5%.
The utilities sector contains 215 companies with 62 strong buy rated stocks and 127 buy rated stocks. With 87.9% of all utilities stocks rated buy, the sector maintains its overweight rating.
On April 2 I wrote, Dow Utilities Outperform S&P 500 in First Quarter and the sector momentum continued until April 30. Not much has changed as ratings among the 15 stocks profiled remain the same; one strong buy rated stock, 13 buy rated stocks and one hold rated stock. Here's my update for May.
OV / UN Valued: On April 2 three stocks in the Dow utility average were undervalued, today two are just slightly undervalued. Nine are overvalued by double-digit percentages Hold rated Williams Companies is the most overvalued by 56.7%.
VE Rating: The only "5-Engine" or strong buy rated stock remains AES .
Last 12-Month Return (%): Only two Dow utility stocks declined over the last 12 months with First Energy the biggest loser down 11% followed by Exelon down by 10%. The biggest winner over the last 12 months is American Electric Power with a gain of 27.2%.
Forecast 1-Year Return: Only Williams Companies shows downside risk over the next 12 months with a projected slippage of 3.2%. The other 14 stocks are projected to gain between 8.5% and 12.3% over the next 12 months, led by AES.
12 Month Trailing P/E Ratios: Sector price-to-earnings ratios have become elevated between 12.9 and 39.4.
200-Day Simple Moving Averages: Only First Energy is trading below its 200-day. This means that the other 14 stocks are at risk of reversion to the mean.
Recent High / Date of High: Each of the 15 Dow utilities stocks set highs for the move between April 23 and May 8 with 11 peaking on April 30 or May 1.
Here's how to use the Value Levels and Risky Levels for stocks in today's table:
Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.
Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.
Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.