Utilities Sector Continues To Rally – Is It Sending A Warning Signal Yet?

We have experienced an incredible rally in many sectors over the past five or so months. My research team has been poring over the charts trying to identify how the next few weeks and months may play out in terms of continued trending or risks of some price volatility setting up.

We believe the utilities sector may hold the key to understanding how and when the US markets will reach some level of stronger resistance, as many sector ETFs are trading in new all-time high price ranges.

Utilities Sector Resistance at $71.10 Should Not be Ignored

The utilities sector has continued to rally since setting up a unique bottom in late February 2021. A recent double top setup, near $68, suggests resistance exists just above current trading levels. Any continuation of this uptrend over the next few weeks, targeting the $70 Fibonacci 100% Measured Move, would place the XLU price just below the previous pre-COVID-19 highs near $71.10 (the magenta line).

My research suggests the momentum up this recent uptrend may continue to push prices higher into early May, quite possibly setting up the Utilities ETF for a rally above $70. Yet, we believe the resistance near $71.10 will likely act as a strong barrier for price and may prompt a downward price correction after the completion of the Fibonacci 100% Measured Price Move.

In other words, the recent rally across many sectors will likely continue for a bit longer before key resistance levels begin to push many sectors into some sideways trading ranges.

What Goes Straight Up - Typically Comes Crashing Down at Some Point

The XLRE Weekly Chart (SPDR Real Estate ETF) highlights the recent rally above the pre-COVID-19 highs, near $42.00, and how the recent rally trend has extended nearly four or so months after a solid base/bottoming pattern in early 2021.

Extended market stimulus and very low interest rates have created a market demand for home purchases that we have not seen in decades. The rally in the Real Estate sector ETFs has pushed price levels just above the pre-COVID-19 highs, a sign that the current rally is extended. We have not seen a measured market pullback in XLRE for almost the entirety of 2021. 

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