As we touched on in Tuesday’s Were You Aware, utilities have been a surprisingly strong sector in the market this year. The recent strength has sent the utilities group’s average score above 3.0 for the first time since October 2022.
Check out this week's Group Score Overview (4:09)
As we touched on in Tuesday’s Were You Aware, utilities have been a surprisingly strong sector in the market this year. The recent strength has sent the utilities group’s average score above 3.0 for the first time since October 2022. The ascent in score started last year in October when the utilities group hit an all-time score low in October 2023 of 0.88. On top of coming off of an all-time score low, utilities have a score direction of 2.14, one of its highest as of Wednesday's close. The positive technical developments come alongside some potential long-term fundamental tailwinds. While most conversations around AI have been about revolutionizing work and productivity, its energy requirements are less discussed. Some analyses project AI servers could use between 85 to 134 terawatt hours annually by 2027 for a middle-ground estimate. This would account for about 0.5% of the world’s current electricity use, about as much as Argentina or Sweden uses in an entire year (NYT). Overall, some positive technical and fundamental developments appear to be showing up in the utilities sector.
Looking at some price action, the Utilities Select Sector SPDR Fund (XLU) is trading on two consecutive buy signals for the first time since early 2022. The fund also returned to a positive trend in April after holding a negative trend since September 2022 and reversed back into a column of Xs on its relative strength chart versus the market yesterday. Some headwinds may appear in the short term since recent action has put XLU into heavily overbought territory. Nonetheless, XLU has made enough technical improvements to consider, especially for those looking for equity income. XLU has a yield of 3.26%. There is a good amount of resistance nearby, ranging from $69 to $73. On the bright side, support isn’t too far away ranging from $60 to $63.
