This sector ETF that won big in April is set to outperform again after a pause, according to the charts

Published Mon, May 6 20241:45 PM EDTUpdated Mon, May 6 20242:51 PM EDT

The utilities sector was the only S & P 500 sector with a positive return in April, helped by its defensive qualities in a weaker tape, and it has seen a strong start to May. The recent strength has resulted in a bullish long-term momentum shift for the Utilities Select Sector SPDR (XLU) . Note its monthly MACD has a pending 'buy' signal this month after having been on a 'sell' signal since Q3 2022. The long-term momentum shift is associated with a breakout above the weekly cloud model (shaded area on the chart), which reversed the cyclical downtrend that had been in place since late 2022. The transition to a cyclical bull trend comes within the context of a secular bull trend, which has been in place since the 2008 low and is defined by the rising monthly cloud model. Zooming in to shorter time frames, XLU does show signs of upside exhaustion on its daily chart and has resistance from a nearby Fibonacci retracement level (~$69), supporting a period of digestion before more upside. We would welcome a short-term consolidation phase as an opportunity for investors to add exposure to utilities and take advantage of their new cyclical bull trend. Relative to the S & P 500, XLU has seen intermediate-term momentum shift positive to suggest it should continue to outperform the broader market when its corrective phase resumes, likely over the next several weeks. This could be helped by a bigger downshift in Treasury yields given the interest rate sensitive nature of utilities. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. 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