Karpel’s Corner: Utilities are darlings so far, but watch for double top

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and  never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

Utilities are darlings so far, but watch for double top

I bet if I asked any of you right now what is the leading sector in the market today, most would say Energy ($XLE), Finance ($XLF), or Materials ($XLB). But you would all be wrong.

The leader is UTILITIES ($XLU). Who would have guessed that one of the most boring sectors would be the outright leader so far in first half of 2014 ($XLU +`13.6%)?

This seems odd since, in the past, Utilities have always been considered safety stocks. In dicey times, they usually deliver higher dividend yields. But they are actually the darlings so far this year.

The move has met some resistance and over the last few weeks, though. We have seen a pop, then a drop, and then another pop which has been pushed back again. This could be the making of a double top in this sector which could be bearish for the sector.

If, in fact, this sector does start to become more bearish, that could be a negative flag for the bark. But it could also be a positive flag for mid term bond yields, specifically the 10-year ($TNX). Any pick up in yields for the bonds would be another negative for Utilities.