XLU - Hold Utilities for Consistency

roxythetradermage Updated   
AMEX:XLU   SPDR Select Sector Fund - Utilities
Utilities are basically yesterday's tech stocks. In the late 1800s, the stock market ditched railroads and moved on - to utilities. In fact, there was a time where speculation ran rampant and panics were set off based on the movement of utility stocks.

Today, utilities are the opposite of tech stocks. They are basically the most consistent and boring stocks you can find on the market. The utility SPDR (XLU) yields 3.3% on dividends & is a very good composite of the utility sector. It has gone up 16% over the past 5 years, which pales in comparison to the S&P 500 (43%.)

The only reason you would want to hold onto them for the long term is that you can be absolutely sure they will stay & keep paying dividends as long as the US stays alive.

Right now, XLU (and pretty much all utility stocks) has come down sharply. It briefly reached the key range near $61 only to sharply rebound.

Because utilities are so consistent, they will generally crash and rebound pretty sharply.
In 2020, utilities crashed quickly & stayed down due to extreme volatility. When you have any short of sharp decline, utilities usually move with the trading day and sometimes even underperform.
In 2008, utilities crashed and stayed generally undervalued for a while.
In 2000, utilities also crashed and stayed undervalued for a while. This may have been due to the Enron scandal around the time.

If you are worried about 1970s-like stagflation, you will be pleased to hear that utilities outperformed during the time and generally stayed flat. (The only catch is that during a major crash, they are not completely immune and will probably go down.)

From a trading perspective, this is a great time to enter because you can be pretty sure that within a few weeks, XLU will rebound to as far as $74 within a matter of weeks.

From an investing perspective, this is also a great time to enter if you like utilities.
Often, people who are very bearish miss out on a lot of gains because they do not hold anything for the very long term.
Utilities are sort of the most defensive stock option, and I would recommend them if you think a super financial crisis is approaching.

You can hold them with minimal fear of stock declines. In fact, they stand to profit from the issues we may be facing - stagflation, energy crisis, etc. Plus, you get a steady flow of dividends that you can reinvest.

In normal conditions, utilities underperform - but overall, they outperform during bear markets.

You could even pick pretty much any regional utility. I did some chart analysis on DUK (Duke Energy) and found it had also bounced off a key support. Almost all the utilities have the same chart pattern, with the exception of troubled ones like PG&E.

In summary, I would go long utilities here if you don't know what to pick in this time. You can be almost certain buying for both the long and short term that utility stocks provide value.
Utilities have rebounded, but they have really taken their time. You could probably interpret that in some way to figure out what's going on with the broader markets.

Either way, they are past the prior $65 swing lows and it certainly looks like there is a lot of upside left.
Utilities have faltered and failed! Now, they are down to the $56 range. This is primarily due to the complete underperformance of XLU's largest component, NEE, and wasn't helped by the Hawaiian Electric incident earlier.

It looks like we are going to be staying near the lows for some time. I would actually wait here before buying more even though it looks really good right now.
Why? The drop was simply too steep and we will need to hang around at these levels for some time. This gives room for XLU's worst performers (D, NEE, HE) to bottom out (probably at lower levels)

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.