The Technology Select Sector (XLK - Get Report) is up 12.8% over the last six months and the Utilities Select Sector SPDR Fund (XLU - Get Report) is also up 12.5% in that time. This month the FANG stocks, Facebook (FB - Get Report) , Amazon (AMZN - Get Report) , Netflix (NFLX - Get Report) and Alphabet (GOOGL - Get Report) , have been under pressure and pulled back off their highs, threatening to take down the entire technology sector. The utilities, on the other hand, have been behaving well and the XLU is preparing to make a new high.
The daily chart shows the 50-day moving average making a cross over the 200-day moving average in February this year, about the same time the fund price was breaking out of a narrow horizontal channel consolidation. It rallied up to the $51.50 level and began trading in a second channel pattern. The price action that followed the breakout rally from the second pattern has been less uniform.
A large inverse head-and-shoulders continuation pattern has formed below neckline resistance in the $54.00 area. The left shoulder formed above the rising 50-day moving average in June, the head case developed just below the average in July, and August the stock moved back above the average, forming the right shoulder.
The relative strength index crossed over the center line and 21-period moving average, and moving average convergence/divergence of its center line. These reading suggest positive short-term price momentum and trained direction.
The accumulation/distribution line crossed above its signal average and Chaikin money flow crossed above its centerline last month and has continued well into positive territory. These readings suggest the fund and the sector are under heavy accumulation and seeing institutional buying.
The inverse head-and-shoulders continuation pattern projects a pattern target price made by taking the height of the pattern and adding it to the neckline, and it suggests an initial 7% move higher from its current level.
The XLU is a buy at its current level using a trailing percentage stop.
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