Chart Master: The technical trade on Utilities

Key Concepts:

• Utilities sector (XLU)
• Total Return (dividends reinvested)
• Comparative Chart Analysis
• Breakout Pattern
• Dividend Yield
• S&P 500

Utilities Sector Analysis

Carter Worth highlights the utilities sector (XLU), noting its recent 52-week high and potential for growth.

Comparative Performance (Dividends vs. Market)

• Chart 1: Compares the utilities sector (orange line) to the overall market performance since the .com peak. The utilities sector has lagged, with the market doubling its performance.
• Chart 2: Shows the total return of the S&P 500 utility sector versus the S&P 500 with dividends reinvested over 25 years. The total return is essentially equal, emphasizing the significance of dividend yield in the utilities sector.

Technical Analysis of XLU

• Chart 3 & 4: Identical charts of XLU annotated to show a classic breakout pattern. Worth suggests two ways to draw trendlines, both indicating a bullish formation. This breakout suggests potential upward movement in the sector.

Sector Weighting

• The utilities sector represents 2.4% of the S&P 500, indicating a relatively minor weighting within the broader market.

Conclusion

Carter Worth's analysis suggests a bullish outlook for the utilities sector based on its recent breakout and the historical importance of dividend yield in driving total returns. While the sector has lagged the overall market in pure price appreciation, the inclusion of reinvested dividends paints a different picture, highlighting the sector's long-term value. The technical analysis further supports a potential upward trend, making it a sector to watch despite its relatively small weighting in the S&P 500.