The S&P 500 Utilities index is up almost 4% year-to-date while the broader index is languishing at a 13.5% loss. Despite rising consumer prices, everybody needs utilities, giving traders an opportunity to capitalize on utilities exposure.
“The sector is the second-best performing one in the U.S. behind energy year to date, trouncing the S&P 500 by 15 percentage points through Friday,” a Wall Street Journal article published on May 14 noted. “That leaves utility stocks trading at almost 20 times forward 12-month earnings on average—close to an all-time high and nearly a fifth richer than the S&P 500.”
As mentioned, consumers don’t have much of a choice when it comes to utilities. Despite rising electricity bills, they’ll do anything to keep the lights on.
“As markets fear a recession, being in the business of collecting monthly checks is understandably appealing to investors,” the article added. “Cash-strapped consumers are more likely to pull back on eating out or shopping before risking that the power or gas will be shut off.”
Levering Up on Utilities
Traders looking to play a move higher on utilities can opt for the Direxion Daily Utilities Bull 3X Shares (UTSL). The fund seeks daily investment results equal to 300% of the daily performance of the Utilities Select Sector Index.
From a technical standpoint, the short-term momentum on UTSL looks to stay put especially given the fundamental factor that consumers continue to spend despite inflationary pressures. Back to the technical aspect, the 50-day moving average is still above the 200-day average, once again noting that short-term momentum is still present.
Speaking of which, the relative strength index (RSI) can confirm that momentum further. The current figure, using the chart from a year-to-date time frame, shows 55.97 — this still sits below overbought levels, meaning there could be more room to run for the fund.
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