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 Ltd. (TSX: T.RIM, Stock Forum) (NASDAQ: RIMM) (up 54%), Apple Inc. (NASDAQ: AAPL, Stock Forum) (up 5%), and Facebook Inc. (NASDAQ: FB, Stock Forum) (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 at the last 30 years, it is clear that utilities have 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 it looks to be utility stocks that will make significant moves.
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 breakout above the red dotted resistance line. Exchange traded funds Select Sector SPDR-Utilities (NYSE: XLU, Stock Forum), First Trust Utilities AlphaDEX Fund (NYSE: FXU, Stock Forum), ishares Trust-Shares Dow Jones US Utilities Sector Index Fund (NYSE: IDU, Stock Forum), and WisdomTree Trust International Utilities Sector (NYSE: DBU, Stock Forum) are the funds I found to be setting up.
Utilities Sector Trading Conclusion:
While I feel utilities are about to start moving higher, it is important to mention that the broad market is setting up for a 1-3 day pullback. If the stock market does pullback this week then we should see utilities pullback also. What I am looking for is a minor pullback in XLU, with the price holding up above $34 while the stock market pulls back.