Global Jitters Lift Utility Stocks

By Jim Donnelly, Olson Global Markets

With worries and a rise in political rhetoric over the referendum in the Crimea region of Ukraine today, and with concerns that Chinese debt issues could pose a threat to global growth, the Dow Jones Utility Average (DJU) climbed steadily last week. Moreover that average, which is perceived to be have a defensive bias to it by many investors, is now approaching at test of key downtrend resistance at the 535 level.

Since the DJU is currently in an overbought technical condition on weekly charts, a break above 535 could be a sign that investors are retreating from risk and running to safety instead. And while a move up to resistance at 570 could follow a break above 535, a broader look at the Dow Jones Utility Average reveals that a large upward sloping trading channel that allows for sharply higher gains in future months remains in place.

Another issue to consider is that utility stocks, which have risen nearly 9% since January 2nd, have been largely overlooked and somewhat shunned due to investor expectations for a rise in domestic GDP and a steepening yield curve. While a move above 535 could be seen as a near-term run-to-safety maneuver, a move above 570 could be seen as something more than just retreat from risk.

Nevertheless, overbought conditions are in place at this point in time and could imply that any major upward thrust from current levels could be limited. Time will tell.

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