Last week the top performing sectors were utilities and consumer staples. These are sectors that often perform well, relative to other sectors, when the market is near a top or in early stages of decline. Strong buying late last week shows buyers aren't backing off from this market just yet, although the strong money movement into these sectors shows buyers are being more cautious and selective on their stock purchases.
Utilities Select Sector SPDR (ARCA:XLU) has under-performed the broader market since May as the lure of higher growth prospects in other sectors draws investors away from this more conservative and stable and sector. Selling pressure has mostly dissolved though since last August, as the Utilities ETF has formed a based and strong support area. A series of lower highs and now higher lows shows the ETF is moving within a triangle pattern. In which direction it breaks out will likely determine the trend over the next several months. A rise above $38.60 breaks the triangle to the upside, while a drop below $36.90 breaks it to the downside.
Duke Energy (NYSE:DUK) has been performing well in this sector over the last month. The stock is still in a downtrend which began in May, but if investors continue to invest cautiously this stock will likely see a push above the downward sloping trendline. Minor resistance is near $70, so a push higher than that indicates the broader market is likely in the final stages of the bull market. Minor support is at $66 and major support in the $64 region. A drop below the latter is a signal that investors that aren't interested in the relatively stability of utilities, either because the broader is continuing to advance, or it is dropping enough to brining utilities down with it.
Consumer Staples Select Sector SPDR (ARCA:XLP) has held up a bit better than the Utilities ETF, as it has moved predominantly sideways since May, The price has been moving within a slightly narrowing channel, and currently has room to run up to $41.50 to $41.75 before encountering strong resistance. Support is at $39.50, and drop below that would be an early warning sign of trouble. If it drops below strong support at $39 the sector, and likely the broader market, will be under strong selling pressure and looking for shorts or hedges is preferred to finding buying opportunities.
Clorox (NYSE:CLX) has been moving in a downward trend channel since late April, and is currently heading toward a test of the upper band just above $85. If that is breached, the stock will likely test the next resistance area covering $86.50 to $88.30. If the stocks begins to head lower though, support is in the $80 region. The stock can also be used as an overall market thermometer. If Clorox rallies it indicates there is still some optimism in the overall stock market, but the appetite is for stable companies with dividends (why utilities are also in focus). If the stock falls aggressively through the bottom of the channel, it shows there is little appetite own equities.
The Bottom Line
Utilities and consumer staples are stocks which perform well, compared to other sectors, at market tops and during early bear markets. They were top performers last week, but how they perform over the next couple weeks will provide much greater insight. If they continue to be top performing sectors it's a strong indicator that the overall market is very near its top or already in decline. If other sectors begin to gain traction again and lead the market higher, this bull market will likely still have some more room to run. Using stop losses to control risk in any market environment is always advised.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.