Energy, Utilities and the S&P 500 – Hint They Are Related

Energy stocks have been gaining a lot of attention the past few weeks. Their rise has helped lift the broad market. But utilities area also getting starting to look attractive again (Utilities Show Signs of Power). Is this a sign that a shift is about to occur? Lets take a look.

The ratio chart of the Energy Select Sector SPDR, $XLE, to the Utilities Select Sector SPDR, $XLU, above is showing signs of break out. It has moved over resistance at a ratio of 2.10 and is consolidating. This move also took it over its 200 day Simple Moving Average (SMA). It has a Relative Strength Index (RSI) that is bullish and rising and a Moving Average Convergence Divergence (MACD) indicator that has crossed positive ad is increasing. Both of these support a further move higher in the ratio. The recent move is happening with increasing volume, also a good sign. So if Energy and Utilities are moving higher it seems that Energy is doing it faster. That is good news. Why? Pull this chart out to a longer timeframe and add the S&P 500 Index, $SPX, as a

backdrop and it becomes obvious. As this ratio went on its long move higher from September 2010 through to April 2011 the $SPX was striding with it step for step. As it topped and fell the $SPX did as well. And now the $SPX is rising as the ratio has come off the bottom and is breaking out. As the $XLE/$XLU ratio goes, so goes the $SPX.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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