Maybe it’s because I’m a downright boring dude, maybe it’s the hipster in me. But at these levels, Utilities (XLU) have my attention.
Let’s start, as is etiquette these days, with breadth.
Sure, it’s been bad across the market as a whole. And if your FinX feed is anything like mine, you’ve probably read all there is to read about how we’re all going to die unless breadth catches up to the indices.
Nowhere in the market has breadth been as washed out as it is in the Utility sector. As of yesterday’s monthly open, only one XLU constituent was trading above its 200dma. And yet if you zoom out just a little bit on the weekly chart…
…does it really look that scary?
Sure, if you were to throw on some moving averages on there, it’d look worse.
But by stripping the chart back a little, I don’t think there’s too much to be concerned about here. Call me crazy, but price is holding above the key pivot area (green bar) with this week’s volume suggesting that at these washed out levels, buyers are stepping in.
Add to this, a quick study - specifically, XLU forward returns in instances where the percentage of constituents trading above the 200dma has dropped below 10%, whilst the broader index (SPY) - has been trading above its 200dma.
Note the green dashed lines:
Sure, N=3 post 2009 isn’t the broadest dataset, but it does help to highlight the rare nature and context of the recent XLU exodus. In short: breadth deteriorations of this scale are rare, rarer still in the context of bull markets. As for those forward returns…
Does XLU have to moon to new highs to make me money? No - but a return to the norm relative to SPY wouldn’t be the worst thing after hitting the worst levels on a 100-day lookback period since 2020 and the Covid outbreak.
So, long XLU. But is that enough?
Earlier today I did some digging around and found this little nugget, AWK, tucked away quietly in the corner of the world’s most boring ETF.
Ain’t she a doozy?
As well as the tightening, multi-year range, there are a few other bits to like here.
Perky volume, sure. But what caught my attention here is the stock’s close proximity to its 200dma - much healthier than its XLU peers. Oh and there’s the fact that it’s a water play - so, ai-adjacent if you’re into that sort of thing.
Best,
Alex
Disclaimer
The information contained in this article is provided for educational and informational purposes only and reflects my personal opinions at the time of writing. Nothing here should be interpreted as financial advice, a recommendation to buy or sell any security, or a guarantee of future performance.
As always, do your own research, consider your own financial circumstances, and never invest money you cannot afford to lose. I may hold positions in securities mentioned throughout this article, and those positions may change without notice.