NEW YORK ( TheStreet) -- The most defensive sector in the stock market is utilities and the Dow Utility Average set a multi-year high on Thursday at 512.11, and is up 13.0% year to date. This is no surprise as 90% of all utility stocks are rated strong buy or buy, and includes 61.5% of all strong buy rated stocks.
When valuations and ratings set up this way at www.ValuEngine.com, it's a clear signal that investors need to become more defensive in their overall investment strategy.
You can trade utilities via the Utilities Select Sector SDPR (XLU) ($39.40). Keep in mind that XLU is overbought on both its daily and weekly charts and that the utility sector is 8.8% overvalued. My semiannual and monthly value levels are $36.48 and $35.88 with quarterly and annual risky levels at $40.27 and $40.52.
On the opposite side of the spectrum are the transportation and construction sectors. The Dow Transportation Average was up 18.6% year to date at its March 19 high, and today it's up 13.2% year to date as sell rated stocks spread into this sector. We show that 77.4% of all stocks in this sector are rated sell or strong sell, which is a warning to book profits and raise cash. You can trade transports via the iShares Dow Transports (IYT) ($106.86). IYT closed Thursday below its 50-day simple moving average (SMA) at $107.04 on a negative daily chart. The weekly chart shows overbought momentum, but IYT could end the week below its five-week modified moving average (MMA) at $107.64, which would be the first such close since the week of Nov. 17. My monthly value level is $105.59 with annual and semiannual pivots at $106.22 and $106.95 (both tested Thursday). My annual value level lags at $97.32. The construction sector as measured by the PHLX Housing Sector Index (HGX) peaked at 198.06 on March 20, up 15.6% on the year at that time. Since then HGX is down 7.5% ending Thursday at $183.14, still up 6.9% year to date.
Sell rated stocks spread into the construction sector before HGX peaked on March 20. We show that 60% of all stocks in this sector are rated strong sell or sell, which is a warning to book profits and raise cash.