Time To Short Utilities

Just Monday morning I wrote The Breakout Week – Sector Review where I stated that Utilities were heading to new highs. And on the Moneyshow interview I said they were still a great buy. And look at the chart. It clearly shows the same uptrend it did a day ago. Have I turned schizophrenic? Or Bi-Polar? Or stupid?

So why do I think that it is time short Utilities? Wait did I write short Utilities? I meant short them against the Financials. Below is a ratio chart of the Utilities Select Sector SPDR, $XLU, measured against the Financials Select Sector SPDR, $XLF. This chart has been in a rising expanding wedge since April but now it is showing signs of tiring. Not only is it falling back to the lower rail of the wedge after confirming the Shooting Star reversal candle from six weeks ago. But the Relative Strength Index (RSI) is now moving sharply lower after working off an overbought condition. And the Moving Average Convergence Divergence (MACD) indicator is about to cross bearishly negative. Finally there is still a good bit of room before it makes contact with the 50 week Simple Moving Average (SMA) currently at 2.18 and where there is previous support. You can short now at ratio of 2.59 and take some profits at the rail at 2.49 or wait for a break of the rail to put on a trade. If now then:

Trade Idea: Buy 260 Shares of $XLF and sell short 100 shares of $XLU

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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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