A Closer Look at Utilities

If ever there was a sector that got people excited -- utilities ain't it. But over the last few months, utilities have staged a very impressive rally. My guess is there are two reasons. First, these are considered safe investments, which are very attractive during crazy market times. Secondly, interest rates are dropping, which benefits any industry that typically relies on borrowed money.

Let's take a look at some charts.



Above is a chart of the utilities ETF, XLU. The index has risen about 13% since late August.



Above is a chart with the moving averages. Note the following:

1.) The index is above the 200 day SMA

2.) All of the moving averages are moving up.

3.) The shorter SMAs are above the longer SMAs.

In short, this is a bull market chart. The only drawback is prices are currently below the 10 day SMA. But a closer look at the latest rally indicates the index is using the 20 day SMA as technical support, so this move is not fatal right now.



On the year long chart, notice that prices have moved above previous highs established in late May of this year.

In short, this chart looks very impressive. Now, let's look at some sectors within utilities, courtesy of prophet.net



Diversified utilities are in the middle of a five year rally. There have been two prolonged periods of consolidation -- one in the second quarter of 2004 and the other in late 2005 to early 2006. But in general, this index has been quietly moving upwards. The only negative to this chart is the possible double top it may be forming over this year.



Electric utilities are also moving up over the last five years. However, they had a big drop earlier this year. But the index has risen about 10% since then in a nice, quiet rally. Also note the index bounced off the long-term support after the sell-off, keeping the long-term uptrend intact.



Foreign utilities look very impressive. They have been rising for five years. But they had a really big move starting in mid-2006. They have been consolidating for most of this year and may be forming a double top. If they successfully bounce off the shorter support line from this year's consolidation it will be a good sign.



Water utilities are a bit messier. While this chart has been rising, it is prone to prolonged periods of consolidation. It has had five such periods over the last five years. In addition, the index is now consolidating in a triangle pattern.



Gas utilities are somewhere between water and foreign utilities in terms of attractiveness. While they are also prone to prolonged periods of consolidation, they have moved up more consistently over the last five years, making them somewhat attractive.