It’s no secret the market loves tech stocks.
The Technology Select Sector SPDR Fund (XLK) has rallied as much as 60% since bottoming in October 2022.
Meanwhile, “boring” sectors like utilities have gotten a lot less love…
For example, the Utility Select Sector SPDF Fund (XLU) bottomed around the same time as XLK. But after a brief rally of 22%, XLU sold off hard.
To put things in perspective, XLK is currently up about 37% year to date. XLU on the other hand, is down over 15%.
However, today I’ll explain why it’s time to start paying attention to boring old utilities.
First, it appears the XLU has put in an important bottom. If it has, then a 15% rally could follow.
Take a look at the chart of XLU below…
Notice how the ETF is fighting hard to reclaim its 20-period moving average (MA) — the green line on the chart. That’s after reaching considerably oversold levels in the Relative Strength Index (RSI) at the bottom of the chart.
Those two technical factors could make for a great mean-reversion trade.
If XLU can stay above the 20-MA for a few trading sessions, that increases the odds that the ETF has bottomed.
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If that happens, traders can set a target for it to rise to the $68-70 range. That would mean about a 15% move from current prices.
Another attractive reason to buy beaten-down utility stocks is their average dividend yield. That yield is currently sitting around 3.57% for XLU.
If the bullish setup in XLU works out, then traders will have a double benefit… They could make money on the coming rally as well as receiving a dividend payout in December.
Happy trading.
Imre Gams
READER MAILBAG
Will you be playing the “boring” rally in XLU?
Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.