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
($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%.
Also see: When It Pays to Hire a Financial Planner >>
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,
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.
OV / UN Valued: On April 2 three stocks in the Dow utility average were undervalued, today two are just slightly undervalued. Nine are overvalued by double-digit percentages Hold rated
is the most overvalued by 56.7%.
VE Rating: The only "5-Engine" or strong buy rated stock remains
Last 12-Month Return (%): Only two Dow utility stocks declined over the last 12 months with
the biggest loser down 11% followed by
down by 10%. The biggest winner over the last 12 months is
American Electric Power
with a gain of 27.2%.
Forecast 1-Year Return: Only Williams Companies shows downside risk over the next 12 months with a projected slippage of 3.2%. The other 14 stocks are projected to gain between 8.5% and 12.3% over the next 12 months, led by AES.
12 Month Trailing P/E Ratios: Sector price-to-earnings ratios have become elevated between 12.9 and 39.4.
200-Day Simple Moving Averages: Only First Energy is trading below its 200-day. This means that the other 14 stocks are at risk of reversion to the mean.
Recent High / Date of High: Each of the 15 Dow utilities stocks set highs for the move between April 23 and May 8 with 11 peaking on April 30 or May 1.
Here's how to use the Value Levels and Risky Levels for stocks in today's table:
Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.
Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.
Risky Level: is the price at which to enter a GTC Limit Order to sell on strength.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined
in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs
and can be reached at