Tickers in this Article: CNP, FE, NRGY, PEG
One group that has not participated in the markets strength so far in 2012 has been the utilities sector. This is likely a good sign for the markets, as it could be signaling a rotation away from the high-yield safety of this group to more aggressive sectors. Watching sector rotation patterns is one tool traders can use to gauge market sentiment and it is clear money has been flowing out of this group.

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For instance, CenterPoint Energy, Inc. (NYSE:CNP) has been steadily declining since the beginning of the year, while the market indexes continue to drift higher. Overall, it is now testing a support level that has held steady for several months. Other than a brief drop in August, the $18.50 level has been clear support for the stock. Volume is ticking higher on this breakdown attempt and it appears that CNP is headed lower. (For related reading, see Point And Figure Charting Basics.)

Another utility that is testing a key level is FirstEnergy Corporation (NYSE:FE). The utility stock has been trading in a sideways range for several months but only recently fell under the $42 level. This level was breached back in August as well, but the stock recovered very quickly back then after approaching its 200-day moving average. This time FE is under that moving average and may find it more difficult to climb back higher. (For related reading, see 7 Pitfalls Of Moving Averages.)

Public Service Enterprise Group (NYSE:PEG) is another utility following a similar track. PEG is starting to fall under key support near $31 after a lengthy sideways consolidation. While overall the base looked typical, PEG has been gradually setting lower highs and seeing an increase in volume on down days. With the 50- and 200-day moving averages starting to slope lower, it may be a while before PEG returns back into the mid $30s. (For related reading, see How To Find P/E And PEG Ratios.)

One stock in this sector that didn't even benefit from the strength this sector had last year is Inergy, L.P. (NYSE:NRGY). It has been steadily grinding lower since topping out early in 2011 and it has been following a steady pattern of establishing a resistance level before ultimately breaking down. After holding near $24 for two months, it is now starting to set new lows again continuing the trend. (For related reading, see Support & Resistance Basics.)

The Bottom Line
While it's probably not wise to run out and short the slow moving, high yield utilities sector, traders should make note of the fact that money is flowing out of the group. This is likely a positive for the markets and traders should keep a close eye on this relationship moving forward. Not coincidentally, the group is oversold while the markets are overbought, which could be hinting at a pullback in the general markets. While this group will likely experience a bounce soon, it appears that the recent weakness may only be the beginning. (For related reading on pullbacks, see Is A Reversal On The Way? Consult Traders' Index.)

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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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