Big Money Says No to Utilities?

10/20/2014 10:00 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Once again, Barron’s Big Money survey has provided some interesting data for investors and MoneyShow’s Tom Aspray is particularly surprised by the negative outlook on one market leading sector.

Friday’s sharp rally further surprised an already confused market and the relatively high bullish sentiment from the AAII during last week’s slide was also perplexing. Though last week’s low could mark a panic selloff in the stock market, it needs to prove itself on the upside.

As I pointed out last Friday, the positive divergence in the McClellan oscillator was confirmed on Friday but the price gains were stronger than the A/D numbers.  The Asian markets responded positively to Friday’s US trading with Japan’s Nikkei up 4%. The EuroZone markets have not followed through yet as they are down in early trading as are the US futures.

In the latest Big Money poll from Barron’s titled The Bull Will Be Right Back, they reported that 59% of the money managers surveyed are bullish with 10% bearish or very bearish. Of the respondents, 37% were neutral. Though they allow for a 10% correction in the next twelve months, their mean forecast for the S&P in mid-2015 is 2170.

It should be no surprise that—after reading Barron’s for well over thirty years—I am a big fan and think it is a publication all serious investors should read. (I have no arrangement with them and faithfully pay for my annual subscription each year.)

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The survey results are quite extensive and this table shows which sectors they think will do the best and worst. Their sector favorites are financial (28%), healthcare (20%), and technology (16%). For the third poll in a row, utilities are rated best by only 1%, but since the start of October 2013, the Sector Select SPDR Utilities (XLU) is up over 19%.

They also report the thumbs up and thumbs down on some of the most popular stocks with Apple, Inc. (AAPL) leading the list with 82% thumbs up. Of course, AAPLwill report after the close today. Also favored are JP Morgan Chase (JPM) (80%) and Berkshire Hathaway (BRK-A) (BRK-B) (78%).

Those with the most thumbs down include Sears Holdings Corp. (SHLD) (99%) and Herbalife Ltd. (HLF) (86%) while they are somewhat neutral on Netflix. Inc. (NFLX), which was hammered last week. For NFLX, 42% give it a thumbs up with 58% giving it a thumbs down.

Should any of these readings be used as a contrary indicator? Let’s look at the charts.

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Chart Analysis: The Sector Select SPDR Utilities (XLU) is down 2.2% from its high of $43.96 but is still up 16.2% YTD.

  • It has a current yield of 3.54% with an expense ratio of 0.16%.
  • The recent low of $41.40 tested the long-term support at line a.
  • The monthly projected pivot support is a bit lower at $41.24.
  • The weekly starc- band is at $40.29 with the long-term uptrend, line b, at $39.23.
  • The relative performance is testing its downtrend, line c, as it tries to complete its bottom formation (line d).
  • The weekly on-balance volume (OBV) has continued to act stronger than prices as it surged to another new high last week.
  • The volume has increased significantly over the past two weeks.
  • There is initial resistance at $43.40 with the monthly projected pivot resistance at $44.12.

JP Morgan Chase (JPM) beat earnings estimated last week and was up 2% last Friday but was still lower for the week. It is down 9.14% from its 52-week high and has a current yield of 2.78%.

  • The weekly starc- band was tested last week and the quarterly projected pivot support at $55.85 was violated.
  • The weekly chart support is at $45.26, and then at $42.25, which was the May low.
  • The weekly relative performance is now testing its WMA with more important support at line i.
  • The RS line has longer-term resistance going back to early 2013 at line h.
  • The volume last week was the highest since September 2013.
  • The OBV is further below its WMA with next important support at line j.
  • The daily OBV (not shown) dropped below its WMA on September 30 and is well below its declining WMA.
  • There is initial resistance now at $57-$57.50 with the declining 20-day EMA at $58.35.

NEXT PAGE: The Two Most Thumbs Down Stocks

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Sears Holdings Corp. (SHLD) dropped 5.3% on Friday but is still holding above the September low at $24.10.

  • The weekly chart shows that the downtrending support, line b, has been tested.
  • The weekly starc- band is at $19.03 with the monthly projected pivot support at $17.03.
  • The weekly RS line is trying to turn up but is still well below its declining WMA.
  • It has formed lower lows since early 2013.
  • The weekly OBV has plunged below the support going back to early 2013, line d.
  • The OBV is well below its declining WMA.
  • The daily OBV and RS lines are both above their WMAs.
  • The quarterly pivot is at $30.60 with the monthly projected pivot resistance at $32.28.

Herbalife Ltd. (HLF) has been in a solid downtrend since it peaked in January 2014 at $83.14. It closed Friday down over 45% from its high. They report earnings on November 3.

  • HLF made a low in late September at $38.63 with the weekly starc- band at $34.93.
  • The monthly projected pivot support is at $32.09 with longer-term chart support in the $30 area.
  • The relative performance topped out in February and shows a well established downtrend, line f.
  • It is well below its declining WMA but still above the late 2012 lows.
  • The weekly OBV is holding up much better than prices as it is still above the long-term support at line g.
  • This is likely a result of the very heavy volume in early 2013.
  • The daily OBV (not shown) is holding above the recent lows.
  • There is short-term resistance at $49.03 with the monthly projected pivot resistance at $50.29.
  • The quarterly pivot stands at $50.69.

What it Means: I always find these surveys quite interesting and the continued negative outlook of the utilities is quite surprising in light of the strong technical outlook. Though the financial sector still appears to be emerging as a market leading sector, it needs an impressive rebound in the next few weeks.

A week ago, I took a look at Apple Inc. (AAPL) and noted that a decisive break below $96 would signal a decline to the $92.50 area, so today’s earnings could be important.

The high degree of negative sentiment on both Sears Holdings Corp. (SHLD) and Herbalife Ltd. (HLF) makes them worth watching as both have been shorted fairly heavily.

How to Profit: No new recommendation.

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