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NEW YORK (TheStreet) -- The most defensive sector in the stock market is utilities and the Dow Utility Average set a multi-year high on Thursday at 512.11, and is up 13.0% year to date. This is no surprise as 90% of all utility stocks are rated strong buy or buy, and includes 61.5% of all strong buy rated stocks.

When valuations and ratings set up this way at www.ValuEngine.com, it's a clear signal that investors need to become more defensive in their overall investment strategy.

You can trade utilities via the Utilities Select Sector SDPR ($39.40). Keep in mind that XLU is overbought on both its daily and weekly charts and that the utility sector is 8.8% overvalued. My semiannual and monthly value levels are $36.48 and $35.88 with quarterly and annual risky levels at $40.27 and $40.52.


On the opposite side of the spectrum are the transportation and construction sectors.

The Dow Transportation Average was up 18.6% year to date at its March 19 high, and today it's up 13.2% year to date as sell rated stocks spread into this sector. We show that 77.4% of all stocks in this sector are rated sell or strong sell, which is a warning to book profits and raise cash.

You can trade transports via the iShares Dow Transports ($106.86). IYT closed Thursday below its 50-day simple moving average (SMA) at $107.04 on a negative daily chart. The weekly chart shows overbought momentum, but IYT could end the week below its five-week modified moving average (MMA) at $107.64, which would be the first such close since the week of Nov. 17. My monthly value level is $105.59 with annual and semiannual pivots at $106.22 and $106.95 (both tested Thursday). My annual value level lags at $97.32.

The construction sector as measured by the PHLX Housing Sector Index peaked at 198.06 on March 20, up 15.6% on the year at that time. Since then HGX is down 7.5% ending Thursday at $183.14, still up 6.9% year to date.


Sell rated stocks spread into the construction sector before HGX peaked on March 20. We show that 60% of all stocks in this sector are rated strong sell or sell, which is a warning to book profits and raise cash.

You can trade the homebuilders via the SPDR S&P Homebuilders ($28.70). XHB closed Thursday below its 50-day SMA at $29.01 on a negative daily chart. The weekly chart shifts to negative on a close today below the five-week MMA at $29.05. My quarterly and semiannual value levels are $26.83 and $25.41 with this week's pivot at $29.73.

Over the past three weeks I have been looking for stocks to top out.

Back on March 18, I warned that 12 Sell Downgrades Threaten Dow Transports. The very next day, the Dow Transportation Average set an all time intra-day high at 6291.65.

The transportation sector consists of 186 stocks and only three have buy ratings. The problem is that 95 stocks are rated sell and another 49 are rated strong sell. This was a strong signal that this leadership sector was vulnerable.

On March 19, I warned that Sell Downgrades Weaken Homebuilder Foundations. HGX and XHB peaked the next day.

The construction sector consists of 160 stocks with only one rated a buy. In this sector there are 59 sell rated stocks and another 37 strong sell rated stocks.

On March 26, I wrote Allocate U.S. Holdings to 14 Top Dow Stocks, explaining that brand name stocks are the most prudent investments when reducing your allocation to stocks by at least 50%. Today, there are 17 buy-rated Dow stocks and 13 hold-rated stocks. After making this call Dow Industrials pushed to a new all time high at 14,684.49 on April 2.

I continued my sector analysis on April 2 in Dow Utilities Outperform S&P 500 in First Quarter. The utilities sector consists of 215 stocks with boasts 59 strong buy rated stocks and another 135 buy rated stocks.

Here's a table showing the ratings within each of the 16 sectors tracked by www.ValuEngine.com:

When I see the next waves of buys and sells within these sectors I will feature my analysis for readers on www.TheStreet.com. Keep in mind that sell rated stocks should be considered a source of funds.

The author has no positions in the stocks mentioned today.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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