This exchange-traded fund matches the performance of the Dow Jones Utility Average, or DJU, and has a dividend yield of 3.5%. Because the ETF includes a basket of utility companies, it eliminates the risk of picking the wrong stock. At close to $42 the ETF is up close to 10% for the year to date and 11% for the past 52 weeks.
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When the stock market is volatile and at risk of a correction, investors need to shift their strategy from wealth creation to wealth protection. During the crash of 2008 the utility average dropped 48% to its March 2009 low, compared with 58% for the S&P 500. Investors who bought the utility ETF lost less money and earned the 3.5% dividend.
While many analysts say the current bull market for stocks will continue, there are clues they may be wrong.
For instance, when the stock market is in the process of topping out, the Russell 2000 tends to peak first.
A week ago, the Russell 2000 ended the week in what technicians call a "death cross." A death cross occurs when an index or stock has its 50-day simple moving average decline below its 200-day SMA. When stocks peaked before the crash of 2008 the Russell 2000 peaked first in July 2007 while the S&P 500 didn't peak until October 2007.
A weak euro vs. the U.S. dollar is another warning for stocks as revenue from foreign sales in local currencies are converted to fewer dollars. The euro had a "death cross" on July 7.
As an early warning of slow economic growth, Nymex crude oil began this month with a "death cross." Despite turmoil in the Middle East, the supplies of crude oil are up and demand is down.
This year, the Dow Utility Average set an all-time intraday high on June 30, a day before the Russell 2000. The small-cap index is down 4.6% for the year to date, and utilities are up 11%.
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Investors need to learn that monitoring the technical landscape of the stock market helps maximize gains and minimize losses. Charts map where a market has been so the future path can be projected.