NEW YORK ( TheStreet) -- The Dow utility average gained momentum in mid-March as transports and small caps set tradable highs. Utility strength continued into April as Dow industrials and S&P 500 set interim highs on April 11. While the major equity averages hesitated, utilities continued to a high at 537.86 into April 30, up 18.7% year to date at that time versus a 12.0% gain for the S&P 500. Today the utility average is up 12.7% year to date with the S&P 500 up 14.6%.
The main reason for this rotation was that the Dow utility average became extremely overbought on its weekly chart. At the high the 12x3x3 weekly slow stochastic reading was 97.23 on a scale of zero to 100, where readings above 80.00 are overbought.
The Dow utility average peaked between its quarterly pivot at 524.17 and its annual risky level at 540.37 then tested its monthly pivot at $509.53 on Friday and Monday. You can trade the utilities sector using the Utilities Select Sector SPDR Fund (XLU) ($39.62). Note that XLU has held its 50-day simple moving average at $39.46 with my monthly value level just below at $39.09. After testing $41.44 on April 30, XLU was pulled back down due to the power of the annual and quarterly pivots at $40.52 and $40.27. My semiannual value level is $36.48 with an annual risky level at $43.47.
Chart Courtesy of Thomson/Reuters The U.S. equity markets continues to trade under the cloud of a ValuEngine valuation warning with 68.6% of all stocks overvalued, 29.8% overvalued by 20% or more. We continue to show that 15 of 16 sectors are overvalued, 14 by double-digit percentages including the utilities sector overvalued by 10.5%.
The utilities sector contains 215 companies with 62 strong buy rated stocks and 127 buy rated stocks. With 87.9% of all utilities stocks rated buy, the sector maintains its overweight rating. On April 2 I wrote, Dow Utilities Outperform S&P 500 in First Quarter and the sector momentum continued until April 30. Not much has changed as ratings among the 15 stocks profiled remain the same; one strong buy rated stock, 13 buy rated stocks and one hold rated stock. Here's my update for May.