Charting Risk On and Risk Off with Utilities XLU and Financials XLF

When we’re talking about “Risk-On” or “Risk-Off” Money Flow in the market, there’s many ways to do that.

One simple way is to compare Treasuries and Stocks.

However, if you want to look within the stock market, you can also compare the Utilities group (XLU) with a bullish or Risk-On group like Financials (XLF).

Let’s compare these two groups and see what we can learn right now:

Starting at the beginning of 2016, we see the performance so far of these two ETFs.

At the same time the XLF (green) Financial ETF is down 8% year-to-date, Risk-Off Utiliites (XLU) is up 17%.

Despite the majority bullish or sideways action in the stock market, internal money flow has been defensive or protective.

We also call this “Risk-Off” and we see that when ETFs such as Utilities (XLU), Health Care (XLV), and Consumer Staples (XLV) outperform other sectors.

It looks like the big funds were correct by being defensive through most of 2016 and we can see their footprints by looking at comparisons like these.

Let’s see the actual price charts that gave us clues of a defensive 2016 so far:

Utilities (XLU) – which are often compared to the safe-haven of Treasuries – found a bullish reversal low in August 2015 and price rallied impressively higher from there.

In fact, during periods of weak equity (stock market) price action, the XLU performed very well as money left the riskier stocks and fled to the defense of the protective stocks (including Utilities).

Here’s the same timeframe chart of the XLF Financial Sector:

Instead of finding a bullish reversal low in August, the XLF Financial ETF created a top in July and has been in a persistent downtrend (lower lows and lower highs) since this point.

Carefully compare the sell-swings in the XLF which became strong bullish rallies in the XLU.

Even if you don’t trade these ETFs, you can benefit from this type of “Money Flow” or “Sector Strength/Weakness” analysis by discovering the footprints of the big money and how big funds are positioning their assets within the stock market.

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Corey Rosenbloom, CMT

Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).