The share of companies in the S&P 500 Index utilities sector trading within 5% of a 252-day high topped 96%, a milestone logged in fewer than 1% of trading sessions since 1953 - and last seen in 2016, according to data from SentimenTrader. In instances of readings above 95%, the sector fell 89% of the time over the subsequent month and most often underperformed in the following year.
Whenever this juncture has been reached in the past, "the extreme overbought condition was likely to mark the end of a favorable period for the utility sector," according to Dean Christians, the firm's senior research analyst, who conducted the analysis.
While defensive groups like utilities fare well during market turmoil, it's rare for them to lead the charge in broad market rallies like they did in the third quarter, according to Christians.
On the bright side, while the overbought condition may be poor for the utilities sector, the broader S&P 500 rose every time over the subsequent six months after the group hit overbought levels, suggesting "it's a bull market phenomenon and not some ominous sign," according to SentimenTrader's Christians.