Utilities: overbought and overvalued

xlu

The US utilities sector is up a whopping 28% year-to-date – making it the top performing sector of 2014.  The P/E ratio for the Utilities sector is 18.8  vs. the P/E for the S&P 500 at 18.5.   As you can see on the charts above (daily) and below (weekly), RSI is overbought, so is stochastics. The index has blown through its upper Bollinger band on both charts. This sector has gotten goofy-overbought. I’m not going out on a limb here if I predict at least a near termed pullback –soon!

xlu weekly

Meanwhile, the Canadian utilities sector continues to yo-yo erratically and violently between the high $14’s and high $15’s – per the BMO ETF. While not so obviously overbought from a technical perspective, this ETF is nearing the top of the trading range. Canadian utilities are trading at a trailing PE of about 10 points higher than the US side – making them even more expensive. The dividend yield on both the US utility ETF and the Canadian utilities ETF s about the same–around 4%.

zut

All in, nothing would entice me to take new positions in the utilities sector on either side of the border. In fact, investors who are not so enthralled by the high dividend might want to consider reducing exposure to this sector.

 

To all of my readers – thank you for following this blog (if you don’t get regular notices for the blog, be sure to follow us on twitter @ValueTrend).

Happy New Year to all, and I will look forward to another exciting year of trading and commenting on the markets in 2015!

2015

10 Comments

  • Hi Keith!
    Thanks for your advice in 2014. I wish you and your team and all of us more accurate predictions in 2015!

    Are you tracking indexes or sectors that are near their bottoms right now and that would be good investment choices for 2015? It seems like everything is trading at their high end of their range (due to 2014 being an up year for most probably).
    Let me know,
    Regards,
    Luc near Windsor Ontario. Hoping to meet you in person in 2015!

    Reply
    • Luc-thanks for the comment–and yes, I love watching the indices that have been beaten. BUT…only buy after a base, then a breakout. No such thing as predicting the bottom correctly in my skillset, so I wait patiently for the market to tell me the downtrend is over.
      I’ll blog on such events as/if/when I see them

      BTW–I am speaking in Richmond Hill on (what else…) Technical Analysis, and would enjoy meeting you —Richview: Toronto Public Library: 1806 Islington Ave, Toronto, ON M9P 3N3 – January 14, 2015 @ 7:00 PM
      Happy New Year

      Reply
    • Thanks Leo–BTW–its Keith, not Kevin, but not to worry–I have had some people call me by my last name “Richard”!
      Best in 2015

      Reply
  • You nailed that call. Too bad I didn’t see the blog post until after it corrected

    Reply
  • That one is looking like a false breakout. I can’t remember where I read it but many times false breaks can go the wrong way violently as shorts or longs get caught and have to scramble to cover

    Reply
  • Thanks for all the great work you shared with us via your blog in the past year. Looking forward to read more of your work.

    Reply

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