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Blog Posting: February 5, 2008, Utilities Brief Rise then Down (^DJU)
Last year the Dow Jones Utility Average was the best performing of the five indices.
- Utilities: 16.6%
- Nasdaq: 9.8%
- DJIA: 6.4%
- S&P 500: 3.5%
- Transports: 0.2%
The above table shows the change from the close on December 29, 2006 to December 31, 2007 and does not include dividends. If it did, then the utility average would do even better.
I was fortunate to have the highest concentration of my portfolio in utility stocks last year (find the three worst performing utility stocks last year and you’ll be
close to the ones I chose).
Looking at the chart on the right, which shows the utility average on the weekly scale, notice the average dips in both January 2007 and 2008. Price
at the first half of last year made a near straight-line run upward until May and then stumbled. Will it produce a similar performance this year? I will let you know at year’s end.
Right now, the average is bumping up against the 62% Fibonacci retrace line. That level is 62% of the move from D to C. Also, overhead resistance setup by prior peaks highlighted
by the horizontal red line might pose a problem for the average. On the plus side, interest rates are declining and that is good for the industry which
has a lot of debt to finance all those utility plants and other infrastructure. But the warmer than expected weather earlier in the winter caused some pain, and that’s why
the average dropped from D to C.
This is how I see the utility average shaping up: In the short term, the average will continue the move up until it reaches
overhead resistance (probably at the 62% line but maybe the red line), turning down, and then making a higher low (perhaps dropping all the way down to
the up-sloping green trendline before staging a recovery on a new push to the summit, D.
I only own one utility stock now but it represents a significant holding. When price approaches D, then I will consider selling if I see the stock top out. Since it is a long term holding,
I am not interesting in selling it now. I will ride out any downturn and collect the nearly 6% dividend.
Aftermath
Price moved almost as I outlined above. The average changed an unfinished white candle into a taller black one, but did not climb closer to the 62% Fibonacci retrace
line before dropping. The drop too the average down to the green trendline and slightly below it before staging a recovery.
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