This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Utilities Remain Most Overvalued Sector

Stocks in this article: XLU AEP D DUK ED

NEW YORK ( TheStreet) -- On July 30, I wrote an article titled " Consider Taking Profits on Utility Stocks." Two days later, the Dow Jones Utility Average set a multiyear high at 499.82.

On Friday, the Dow utilities closed at 472.13, down 5.5% from that high. Over the same period, the S&P 500 charted another 6.6% to the upside.

While this significant divergence was underway, the yield on the 10-year Treasury note rose from 1.470% to 1.870%.

That has caused the difference between the yield on that Treasury and the 3.66% dividend yield on the Utilities Select Sector SPDR (XLU) to narrow.

Looking at the overall stock market, stocks are now more overvalued than they were at the end of July.

On July 30, ValuEngine showed that 67.1% of all stocks were undervalued.

Today, that percentage is 45.7%. One important reason for this shift is the rising yield on the 30-year Treasury bond, which ended Friday at 3.091%, up from 2.550% at the end of July.

Today, 15 of 16 sectors are overvalued, led by utilities, which are now 18.5% overvalued vs. 12.9% on July 30. My investment theme for utilities thus remains the same today: "Consider taking profits on utility stocks."

The Dow Jones Utility Average is up just 1.6% year to date vs. 16.6% on the S&P 500.

The weekly chart below shows a negative profile with declining momentum and weekly closes below the five-week modified moving average at 476.08.

A key technical support not shown on this chart is the 200-day simple moving average at 464.48, which was tested last November.

The daily chart for XLU ($36.54) below shows that momentum is rising and XLU is just below its 21-day simple moving average at $36.65. It's also between its 200-day at $35.78 and its 50-day at $37.10.

For those employing a "buy and trade" strategy, my monthly value level is $35.96, with a quarterly pivot at $36.55 and a quarterly risky level at $39.89.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,589.95 +233.08 1.34%
S&P 500 2,041.90 +29.01 1.44%
NASDAQ 4,714.4980 +70.1860 1.51%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs