'Tis the Season for Utility Stocks

11/30/2012 6:00 am EST

Focus: ETFs

There are lesser-known seasonality trends in place, writes Chris Vermeulen of TheGoldAndOilGuy.com, which makes the utility sector the place to be right now.

Over the past week I have been keeping my eye on several key sectors and stocks for potentially large end-of-year rallies to lock in more gains before 2013. One play that looks intriguing for option trading is the utilities sector.

Looking back 30 years clearly utilities (DJ Utility Index) have a tendency to rally going into year end. What makes this setup so exciting is that the Obama tax for 2013 has caused many investors to lock in capital gains along with dividend gains so the utility sector has recently been beaten.
I always like to cheer for the underdogs because they can make large moves quickly and this season it’s utility stocks.

30-Year Seasonality Chart - Utilities Stocks

Click to Enlarge

Utility Sector ETFs:
In the graph below I show the main utility ETFs for trading. Simple analysis clearly shows the selling momentum is slowing and where price should go if it can break out above the red dotted resistance line. Exchange traded funds SPDR Utilities (XLU), First Trust Utilities (FXU), iShares DJ Utilities (IDU), and WisdomTree Global Utilities (DBU) are the funds I found to be setting up.

Utility ETFs & XLU Hourly Chart

Click to Enlarge

Utilities Sector Trading Conclusion:
While I feel utilities are about start moving higher, it is important to mention that the broad market is setting up for a near-term pullback. If the stock market does pull back this week then we should see utilities pull back also. What I am looking for in option trading is a minor pullback in XLU with price holding up above $34 while the stock market pulls back.

Chris Vermeulen can be found at TheGoldAndOilGuy.com.

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