Power Stocks Lose Their Juice

Investors should not ignore the technical damage done recently to the energy and public utilities sectors. The Energy Select SPDRs(XLE Quote) has declined 17.8% since Sept. 22. The Dow Utility Average declined 13.6% from its all-time high of 438.74 set on Oct. 4 to a low of 378.95 last week. My model has been waving red flags as the energy sector ended the third quarter 17.2% overvalued with utilities 11.5% overvalued.

The chart profiles for the XLE and the Utility Average are similar, and they reflect the technical damage that has been done. A look at the daily and weekly charts for the Dow Utility Average will show clearly that power is no longer a safe haven for investors.

A look at the action in commodities shows that further upside appears limited. With these commodities markets peaking, it is not surprising to see energy stocks and utility companies face significant price reversals, especially given how overvalued they were at the end of the third quarter. ...