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The Dow Jones Utility Index of 15 stocks doesn’t get much love, but it should. It’s actually had a long history of very interesting patterns, with particular success in rounded tops leading to nice drops. Over decades, the $UTIL has topped and dropped repeatedly, with the 2007 top being one of the most superb (perfect, actually) head and shoulders patterns among the literally millions of charts I have examined over the years.

Recently, it has taken on a different path. It had formed a very compelling diamond top, but after it broke down from that, instead of continuing lower, it has instead entered into a protracted love affair with the lower-right trendline of that pattern.

As you can see on the right half of the chart, prices are magnetically drawn to this trend again and again, respecting it as either support or, as it is now, resistance.

I’ve decided to give XLU another shot as a short-sale, but with an extremely tight leash. Specifically, I’ve shortened it in size today with a stop-loss at $82 (like I said, VERY tight leash).

You may wonder why the XLU doesn’t look quite like the $UTIL, since the XLU seems to be substantially stronger. The reason is simple: SlopeCharts takes dividends into account, which I have always viewed as a “must have“. To do otherwise (as many platforms do) would be as reckless as not adjusting for stock splits. It’s simply a more complete and honest presentation of what the financial instrument has done over time.

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