Technicals Sunday: XLU false breakout

Mike Zaccardi, CFA, CMT

Technicians love their mottos and catch-phrases. Many ring true. One of my favorites is “from false moves comes fast moves.” Meaning, when a chart experiences a ‘false breakout’, or appearing to make a bullish technical signal above key resistance only to see the price fall back below said resistance, a rather sharp move to the prior lows may be in store.

I learned that phrase and technical move from JC Parets at AllStarCharts.com – one of my CMT Charter sponsors from 2014 along with Jonathan Krinsky and Greg Harmon. Those three dudes are on the Mount Rushmore of finance twitter technical analysts.

Enough of my trip down memory lane – back to the charts. So what’s going on with ‘the Utes’?

XLU, the Utilities sector ETF, looked like it was heading for a new bullish run when the chart made its highs earlier this month above $62. The bears regained control, and brought XLU quickly below $60. Here we are now near the May nadir in the mid-$50s. The May 14th low near $54 is the new critical point on the chart.

Looking more broadly, another famed technician and fellow CMT Charterholder, Ryan Detrick at LPL Research provides a cool S&P 500 chart displaying each day’s average performance since 1950. The good news for short-term bulls? June 30 through July 17 tends to be quite strong for the US stock market. Will that help Utilities hold the line at $54? We may soon find out.

Interest rates are always important for the Utilities sector. All else equal, when interesting move higher, Utilities tend to perform worse. The benchmark US 10-year Treasury yield finished last wee at its lowest weekly rate in two months as investors remain concerned about the impact on the market from increasing COVID-19 cases across southern and western states.

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Chart used with permission from Tradingview.com