(Premium) Utilities Sector Deep Dive – September
The Utilities are the worst-performing sector year-to-date, and by a fairly wide margin. They’ve dropped roughly 10%, while the S&P 500 sits on double-digit gains.
The Utes are below a key level of former support, one that’s been in place for more than 2 years.
Last time they were here, the sector was able to quickly recapture the broken support level, sparking a sharp mean-reversion rally. But efforts to rally over the past few weeks have been rejected.
That’s in spite of favorable seasonality in August and September: Utilities tend to outperform the S&P 500 in those two months.
It’s tough to outperform at all when you’re stuck in a protracted downtrend, though. The Utes are stuck on the left side of the weekly Relative Rotation Graph, alternating between the ‘Lagging’ and ‘Improving’ quadrants, but never reaching the ‘Leading’ one.
It’s a trend that’s been in place for the last 15 years. Check out the steady decline in the ratio of Utilities to the S&P 500. There have been periods along the way where the sector has kept pace with the benchmark index, but nowhere have we seen more than a brief glimpse of higher highs. This sector is guilty until proven innocent.
Digging Deeper
The one bright spot for the sector has been Gas Utilities. That sub-industry has stayed in positive territory for most of the year.
It’s a lonely group, unfortunately. Atmos Energy is the only constituent of the sub-industry, and it’s so far been unable to successfully break out from this big, three-year range. If the breakout ever comes, we can target a move to $145, which is the 161.8% retracement from this big trading range. But there’s no reason to own it below the 2020 highs.
Leaders
Edison International is among the leaders over the last 4 weeks and it’s near the top end of the last year’s trading range. What we like most about the stock, though, is the relative strength it’s showing against the rest of the sector. It’s at 3-year highs compared to the Utilities sector index after completing a big, bearish-to-bullish downtrend reversal.
Losers
Then there’s names like Eversource Energy. It’s been trending steadily lower vs. the sector for the last 3 years. Right now, the ratio is further below its 200-day moving average than at any point since 2005, and momentum is spending quite a bit of time in oversold territory. Perhaps that sets the stage for an oversold mean reversion rally – or perhaps not.
One more to watch
Constellation Energy hasn’t been around too long – it spun out from Exelon early last year – but the stock has already made a name for itself. It’s the top-performing stock in the sector so far this year. And on the weekly RRG vs. the rest of the sector, CEG stands alone.
The stock just set new all-time highs as it progresses toward the 423.6% retracement from last summer’s selloff. Support is down at $95.
The post (Premium) Utilities Sector Deep Dive – September first appeared on Grindstone Intelligence.