Utilites Poised For a Bounce, Or Ready For a Meltdown?
This has little to do with anything we normally talk about, but I have to wonder if the utility sector is offering up a handful of short-term bounce trades. The Dow Jones Utility Average is lower by nearly 10% over the last four weeks, but Duke (DUK), CMS Energy (CMS), and NiSource (NI) all reported earnings today….and all were better than expected. Those same stocks are also leading the utility sector’s rally so far.
What’s interesting is how the sudden reversal occurred at what has ended up being a big support level for the Dow Jones Utility Average. Check out the line at 460. That was last August’s low. It was also near the low from March of this year as well as March of last year. (Might there be a seasonal trend in there? Hmmm.)
There is a problem with the idea though. Take an even closer look at the chart, and I think you may find a troubling head and shoulders pattern on the verge of being complete…..on the verge of starting the usual meltdown. If 460 breaks down, look out below. Valuations have nothing to do with the matter - this is a technical/momentum issue.
I for one expect the upside move to pan out, which puts me in the minority. Of course, I’m not jumping on until I see the utility index make its way back above 469. That’s my re-assurance.
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