A lot of eyes are firmly fixed on utilities at the moment. And for good reason. As you can see in Figure 1, the Dow Jones Utilities Average is presently facing a key resistance level. If it breaks out above the likelihood of a good seasonal rally (more in a moment) increases significantly.
Figure 1: Courtesy ProfitSource by HUBB, Courtesy AIQ TradingExpert
One concern may be the fact that a 5-wave Elliott Wave advance appears to possibly have about run its course (according to the algorithmically drawn wave count from ProfitSource by HUBB, which I use). See Figure 2.
Figure 2: ProfitSource by HUBB
For what it is worth, the March through July timeframe is “typically” favorable for utilities. Figure 3 displays the growth of $1,000 invested in the Fidelity Select Sector Utilities fund (FSUTX) ONLY during the months of March through July each year starting in 1982.
Figure 3: Mar-Jul every year 1982-2018
For the record:
*# times UP = 29 (78%)
*# times DOWN = 8 (22%)
*Average UP = +9.3%
*Average DOWN = (-5.8%)
*Largest UP = +21.1% (1989)
*Largest DOWN = (-25.8%) (2002)
*Solid performance but obviously by no means nowhere close to “a sure thing”.
*It should be noted that several of the “Down” years occurred when the S&P 500 was already in a pretty clearly established downtrend (2001, 2002 and 2008), i.e., below its 10-month moving average. See Figure 4.
Figure 4: AIQ TradingExpert
Summary
Utilities are flirting with new all-time highs and March through July is a “seasonally bullish” period for utilities. Does that mean “happy days are here again, and we should all be piling into utilities? Yeah, isn’t that always the thing about the markets? There is rarely a 100% clear indication for anything.
As always, my “prediction” about what will happen next in utilities is irrelevant and I am NOT pounding the table urging you to pile in. But I can tell you what I am watching closely at the moment:
*The S&P 500 Index is flirting right around its 10-month moving average (roughly 2,752 on the S&P 500 Index). If it starts to break down from there then perhaps 2019 may not pan out so well for utilities.
*The Dow Jones Utility Average is facing a serious test of resistance and may run out of steam (according to Elliott Wave).
*But a breakout to the upside could well clear the decks for utilities to be a market leader for the next several months
Focus people, focus.