A tale of two sectors
Most utility stocks have been rising over the past 3 weeks and are trading above their 50-day averages. Few energy stocks can boast the same.
When there has been this wide of a divergence between those two sectors, the broader market had a strong tendency to rise with only one (small) loss over the next 3 months.
Utility stocks tended to perform better than energy stocks going forward, suggesting there wasn’t much of a mean-reversion thing going on.
A terrible few weeks
Oil got slammed by more than 2.5% on 6 of the last 15 sessions, sliding to a multi-month low. That has led to mixed returns for energy stocks over the shorter-term, but the S&P energy sector was higher every time over the next 6 months.
The NYSE Cumulative Advance/Decline Line rose enough to set a 52-week high on Thursday, leading the S&P 500 and other major indexes.
When it did so, the S&P usually set a new high within a month or two (it took an average of 34 trading days), and future drawdowns tended to be limited relative to maximum gains.
The AAII Bull Ratio has been below 45% for 5 straight weeks, adding to their streak, the longest stretch since February 2016. The 5-week average is now 40.1%. Per the Backtest Engine, a 5-week Bull Ratio this low during a bull market environment preceded gains in the S&P 500 over the next 3 months after 64 out of 64 times.
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The post titled A Tale Of 2 Sectors was originally published as on SentimenTrader.com on 2019-06-14.
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