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Utilities Technically Positioned for Nearly 20% of Upside Ahead

Posted on Sunday June 05, 2016

It appears the market is telling us the likelihood of a Rate Hike is not very high. Off of the wonderful Jobs Report Friday the Utilities sector broke out to new 52 Week highs.
Don’t worry the margin of Error on the jobs report is 100K so maybe things aren’t as bad as they seem.
This sector has about 18% of upside from here based on a technical measured move.
Add that to 3-3 1/2% yields and can be a nice return going forward.

Starting first with the relative strength vs the S&P. We have broken and are holding above the downtrend line of relative performance.

relative

 

Then just looking plainly at the Price Action in the sector, we that Friday the Utes acquired their inverse H&S target at 50.24 and are now triggering a bullish cup/handle with a target of 58.
I really only want to be long these above 49.75 and would rather be above 50.25 to be most confident as it more or less confirms the breakout.
(The reason for this is that usually we see profit taking after a major target is acquired. However that profit taking took place starting in early April, forming the handle of the cup/handle)

That being said, this sector looks as good as it gets. I expect this to see follow through pretty quickly, but above 50.25 is the safest way to play it from a technical perspective. Fundamentally, if you are already in love with the sector, the Technicals Agree!

Below are several charts I hand picked to to the pattern and the relative performance to the SPY. We can get a bit of Beta to the ETF, but not much, so the ETF is the most conservative way to play it.

PNW below is probably the best chart, yield and return bang for the buck. It has a 3.37% yield with a 23% upside target.

There are plenty of other great setups in the Utes, I just hand picked a few.

Bottom Line: Keep an eye on this sector.

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