Unique Seasonal Power in Utilities: The Best Months to Invest | Don’t ignore this chart!

The utility sector is generally known as a defensive investment because it withstands all phases of the economic cycle. Utility stocks are often viewed as complementary assets to assets targeting “growth.”

But even within defense sectors like utilities, growth is a matter of timing. From a seasonal perspective, there are months when utilities tend to outperform the S&P 500. Given the growing demand for electrification and EV adoption and the fact that many utility companies are adopting artificial intelligence (AI) technology, utilities may see an uptick. This time, stronger and higher than before.

Whether so or not, it is worth anticipating such trends. This is especially true if you’re looking at utilities for a short-term seasonal play or to further diversify your portfolio over the long term. Let’s look at the Utilities Select Sector SPDR Fund (XLU) as a sector proxy, focusing on the following:

• XLU’s 10-Year Season Performance
• XLU’s 10-Year Season Performance vs. S&P 500 ($SPX)
• Weekly and daily performance of XLU

If you want to allocate some of your funds to XLU, you need to find a good entry point.

How to access seasonality tools

There are several ways to access StockCharts’ seasonality tools.

• Click Next. charts and tools Click the tab at the top of the StockCharts page, enter a symbol in the Seasonality panel, and click “Go.”
• Enter the symbol. chart bar Select ‘Seasonality’ from the left drop-down menu at the top of the page.
• at dashboardIn Member Tools seasonality.
• Below the seasonality chart are links to instructions and quick tips that provide more detailed guidance.

XLU’s 10-Year Seasonal Performance

Chart 1. XLU’s 10-year season performance. Take a look at the higher closing rates compared to average monthly returns and compare them to the chart below, which tracks seasonal strength relative to the broader market.Chart source: StockCharts.com. For educational purposes.

XLU’s busiest months are March (67% close rate, 3.2% average return), July (78% close rate, 3.3% average return), and October (89% close rate, 2.2% average return). .

February was the worst month seasonally, with a 33% higher closing rate.67% lower closing rate—The average return is -2.5%. As we head into February in just a few weeks, it’s important to know this seasonal context. However, a seasonal read would seem incomplete without also looking at XLU’s performance against the broader market.

10-Year Seasonal Performance of XLU vs. S&P 500

Chart 2. 10-year seasonal performance of XLU versus S&P 500. Compared to the S&P 500, seasonal charts can change quite dramatically.Chart source: StockCharts.com. For educational purposes.

Unlike the seasonality chart in Chart 1, July is a poor month for XLU compared to the S&P 500. XLU’s comparative performance in October is rather weak. However, while March’s performance relative to the S&P 500 was seasonally strongest, February remained similarly weak.

So, if you’re aiming to play the season, could February be a favorable entry point in anticipation of March’s potential performance? Let’s take a look at XLU’s weekly performance.

Long-term circularity of XLU

Chart 3. Weekly chart of XLU. It could be downward channeling, but are the smaller cycles relatively consistent?Chart source: StockCharts.com. For educational purposes.

After the crash in March 2020, when XLU (along with the entire market) bottomed, you can see how XLU has risen, peaked in the summer of 2022, and then started to decline.

Many analysts argue that the utility industry tends to see longer growth swings in the year before (and in the months after) a recession. It’s a safe play. As for the 2024 outlook, analyst forecasts for the utility and XLU remain mixed. However, the strong cyclicality of XLU refers to the cyclical swings of the Stochastic Oscillator. XLU is currently in a downcycle. And this is consistent with all of XLU’s seasonal profiles mentioned above. So what are good buying points if you’re jumping into February’s weakness to ride XLU’s potentially strong March rally?

A few things: If seasonal expectations prove consistent with previous years, it is reasonable to expect further weakness in February and a potential rebound in March.

Ichimoku Cloud overlay on daily charts This is helpful for reference and context (see chart below). The lowest point coincides with the first potential support level near $59.00 (the November low is indicated by the dotted line labeled 1). The price is likely to reach this level within a few weeks and you will want to see if the price starts to consolidate from that level or bounces back. This level also serves as a potential buying point if you are looking for seasonal deals.

Chart 4. Daily chart of XLU. Note three entry points that could coincide with XLU’s seasonal weakness in February.Chart source: StockCharts.com. For educational purposes.

In the worst-case scenario, the price will fall below the first level, with the possibility of a bounce from the second and third levels shown on the chart. The third level ($54.50) marked a two-year low. If the price approaches that level, you will likely see a lot of reaction.

So, if you are looking to capitalize on a weak February and strong March expectations, it would be a good idea to set a price alert at $60 and watch what happens when the price reaches $59. If no consolidation or reversal occurs and prices continue to fall in February, set an alert for the next two levels shown on the chart. It’s a kind of see-and-response scenario. And timing is everything in this situation, especially considering it’s a seasonal play. But at least you have a reference point to help you make better decisions.

How to set up price alerts

Setting technical alerts at these support and resistance levels will help you compare potential entry points with market developments that may influence your decisions.

To access the Technical Alert Workbench, follow these steps:

• at your dashboard, Click warning Button > new In ~ your notifications panel.
• In the Alerts workbench, select the type of alert you want to create. Alert type Button in the upper left corner.
• To create a price alert price alert As warning type.
• Add symbols to the symbol box, set price triggers, and choose how you want to be notified.
• Click Next. save alert button.

conclusion

Remember that this specific seasonal reading constitutes the larger economic context surrounding the utility. Many changes and new developments are happening, and analysts’ predictions are mixed. Therefore, set technical price alerts on support and resistance levels as you evaluate potential entry points.

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.