For much of the second quarter Utilities have been lagging behind compared to other broad sectors and the broader market, leading notable technical breakdowns over the past week.
For much of the second quarter Utilities have been lagging behind compared to other broad sectors. Back in May, an article in the Daily Equity Report highlighted some of the initial technical deterioration within the sector, but further negative developments have occurred in recent weeks. Just this week, the State Street Utilities Select Sector SPDR Fund (XLU) has fallen 1% - which follows the fund falling more than 5% during May – bringing the fund to down 4.25%, making it the worst performing broad sector SPDR for the second quarter.
On the default point and figure trend chart for XLU, action kicking off June brought about a third sell signal as well as a violation of the bullish support line, shifting the trend to negative. Prior to the trendline violation, XLU had been in a positive trend for more than 12 months and rallied to highs at $47.50 February before failing to better those in March and April.
Along with the trendline violation, the relative strength picture for XLU has deteriorated further as the market RS chart against the S&P 500 Equal Weight Index (SPXEWI) returned to an RS sell signal following Monday’s (6/1) trading. Prior to the change in RS signal, XLU had been on an RS buy signal since October 2024. Not only has the cap-weighted XLU witnessed a change in RS signal against the market but so has the Invesco S&P Equal Weight Utilities ETF (RSPU). Following Friday’s (5/29) trading, RSPU reversed down into Os on its market RS chart against SPXEWI and gave an RS sell signal following Monday’s (6/1) trading. Near and long-term market relative strength for the funds now resides firmly with the market and utilities out of favor. The trend and relative deterioration for both funds have brought their fund scores to levels not seen since April 2024 with XLU at 2.20 and RSPU and 2.
Broadly speaking, utilities funds (mutual funds and ETFs) have seen their scores fall to levels not seen in two years or more. Evidence of such can be found on the Asset Class Group Scores page, which takes the average score of the ETFs and mutual funds within specified asset groups, such as utilities, and ranks 134 groups to identify strength as well as laggards. Following Monday’s (6/1) action, the average score for the utilities group fell below 3 for the first time since April 2024, marking the end of a two-year run where the group scored above 4 for much of the time. Of the roughly 19 sector or industry specific groups on the Asset Class Group Scores page, utilities now rank 14th.
Among the other technical developments for utilities are continued downside within the broader sector’s indicators. The bullish percent indicator for the sector (^BPECUTILITY) dropped below 50%, suggesting that less than half of the stocks within utilities maintain a point and figure buy signal on their trend chart. Additionally, the longer-term positive trend indicator (^PTECUTILITY) has dipped below 60%, highlighting a continued decrease in utilities stocks maintaining a positive long-term trend (trading above the bullish support line) on their default point and figure chart. In both cases, these levels mark 12-month lows for the intermediate and long-term indicator.
Although utilities sit in an equal-weight position within the NDW DALI Sector Rankings, as discussed above, the mounting weight of negative evidence for the broader utilities space has continued to build. Within further long-term deterioration for the sector potentially on the horizon investors will likely either look to continue lightening up on or step away from exposure to utilities depending on the level of technical deterioration.
