The utilities sector is often looked to by active traders as a sector known for its stability during periods of market volatility. The sector's high barriers to entry and predictable cash flows make it ideal for many types of long-term fundamental investors. However, based on the charts discussed below, it appears as though prices across the sector could be setting up for a dip over the weeks and months ahead.
iShares U.S. Utilities ETF (IDU)
Most sectors across the United States have rebounded extremely sharply from the March lows. For most sectors, the strong bounce from March's drastic selloff was enough to push prices back beyond the influential resistance of the 200-day moving average.
In the specific case of the utilities sector, as measured by the iShares U.S. Utilities ETF (IDU), you can see from the chart below that the price has been facing major resistance near the long-term moving average. Recent price action near the psychological $150 barrier could be used to suggest that the bears are taking control of the momentum and that prices could be gearing up for a move lower. Bullish traders will most likely want to remain on the sidelines until they see at least several consecutive closes above the dotted horizontal trendline.
Dominion Energy, Inc. (D)
As one of the top holdings of the IDU ETF, one company that could be of specific interest to active traders over the days and weeks ahead is Dominion Energy, Inc. (D). As you can see from the chart below, the price of the stock is trading between two converging trendlines. What is important about this pattern is the subtle detail that the price has recently fallen below the support of the 200-day moving average.
Based on the chart of IDU discussed above and the recent move below $79.58, it appears as though the bias is currently set to the downside. Many traders are likely watching for a move below the lower trendline to act as a catalyst for a move lower, and before betting on a move higher, bulls will likely remain on the sidelines until the price closes above $80.
The Southern Company (SO)
Another top holding of the IDU ETF that could capture the attention of active traders over the weeks ahead is The Southern Company (SO). As you can see from the chart below, the price has had significant trouble moving above the long-term resistance of its 200-day moving average. In recent weeks, the price has also found resistance near $55 and has started to turn lower while the broader markets have been able to notch new highs.
This type of divergence is often used by followers of technical analysis to identify areas of weakness, and this stock could be a candidate for a move lower over the weeks ahead. Bullish traders will most likely want to remain on the sidelines until the price makes several closes above the 200-day moving average or the psychological $60 level.
The Bottom Line
Active traders often turn to the utilities sector during times of heightened volatility due to the sector's reputation as a safe haven. However, based on the charts discussed above, it seems as though the sector is currently setting up for a pullback while the rest of the market continues to notch fresh highs. Based on the patterns, we would expect followers of technical analysis to hold a bearish outlook on the utilities sector until the prices are able to close above the mentioned resistance levels
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.