'Tis the Season to Own Utility Stocks

By Chris Vermeulen  NOV 27, 2012 12:15 PM

Simple analysis clearly shows the selling momentum is slowing and where price should go if it can break out above the red dotted resistance line. These ETFs are poised to benefit.


Over the past week, I have been keeping my eye on several key sectors and stocks for potentially large end of year rallies to lock in more gains before 2013.

My recent calls have been Research In Motion (NASDAQ:RIMM) (up 54%), Apple (NASDAQ:AAPL) (up 5%), and Facebook (NASDAQ:FB) (up 8%) so it’s been a great month thus far. That being said, there are three other plays that look amazing and one of them is the utilities sector. 

Looking back 30 years, utilities have clearly had a tendency to rally going into year end. What makes this setup so exciting is that the Obama tax for 2013 has caused many investors to lock in capital gains along with dividend gains so the utility sector has recently been beaten.

I always like to cheer for the underdogs because they can make large moves quickly and this season the underdogs are utility stocks.

30 Year Seasonality – Utilities Stocks

Utility Sector ETFs

In the graph below, I show the main utility ETFs for trading. Simple analysis clearly shows the selling momentum is slowing and where price should go if it can break out above the red dotted resistance line. Exchange-traded funds Utilities SPDR (NYSEARCA:XLU), First Trust Utilities AlphaDEX Fund (NYSEARCA:FXU), iShares Dow Jones US Utilities (NYSEARCA:IDU), and WisdomTree International Utilities Fund (NYSEARCA:DBU) are the funds I found to be setting up.

Utilities Sector Trading Conclusion

While I feel utilities are about start moving higher, it is important to mention that the broad market is setting up for a one to three day pullback. If the stock market does pull back this week, then we should see utilities pull back also. What I am looking for is a minor pullback in XLU with price holding up above $34 while the stock market pulls back.

Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.

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