As many sectors across the globe continue to rebound sharply off of the March lows, many investors are seeking the stability of sectors such as utilities, precious metals, and consumer staples. While it may seem intuitive to shift capital into these types of sectors, the charts discussed below will demonstrate that it may be too early to bet on a continued rally even in historically stable sectors such as global infrastructure.
iShares Global Infrastructure ETF (IGF)
It may seem logical that, since companies that provide transportation, communication, water, and electricity services are in high demand and their services are essential to modern living, associated stock prices would be on the rise. However, taking a look at the chart of the iShares Global Infrastructure ETF (IGF) below, you can see that the price of the fund is testing the influential resistance of the 50-day moving average.
Followers of technical analysis will attest to the idea that a reversion to a long-term mean after being oversold on heightened volatility is a regular occurrence. Given the pattern below, traders will likely expect the bulls to lose conviction near $36 and for stocks in the sector to resume the downtrend that was started when the 50-day moving average crossed below the 200-day moving average in March. The bearish moving average crossover is one of the most common sell signals used by active traders, and it suggests that the bears are now in control of the underlying trend and that the recent selling is showing signs of the next leg lower.
As the top holding of the IGF ETF, traders will likely focus attention on NextEra Energy, Inc. (NEE), which recently had its stock price pushed below the support of the 200-day moving average. Selling pressure has also triggered a bearish crossover between the 50-day and 200-day moving averages (shown by the blue circle), which is known as the death cross and is used by many traders to mark the beginning of a major downtrend. From a risk management perspective, bears will likely set stop-loss orders above either the 50-day or the 200-day moving average. Some may even assume more risk by placing their stop-loss above the horizontal trendline near $248.
Dominion Energy, Inc.
Another top holding of the IGF ETF that could capture the attention of active traders is Dominion Energy, Inc. (D). Taking a look at the chart below, you can see that the price is trading below the intersection of several major levels of resistance, which is a sign that the bias is in the favor of the bears. Active traders will most likely continue to watch for a move lower until common technical indicators turn positive again or the price closes above $82.50.
The Bottom Line
The strong bounce off of the March lows has many active traders talking about the continuation of the momentum and even about retaking multi-year highs. However, as we discussed above, retracement from the lows is currently starting to find resistance near long-term moving averages and important trendlines, which could hinder the bulls' efforts in sending prices higher. Based on the charts, at the current time, it appears as though the bears are in control of the long-term momentum of the global infrastructure sector.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.