Technology and Utility ETFs Go Their Own Way XLK XLU

Aug 16, 2016: 11:00 AM CST

“You can go your own way!” was famously sung by Fleetwood Mac and for the moment that’s exactly what the Technology and Utility sectors are doing right now.

Let’s take a look at these diverging ETFs, one of which flashed green and the other flashed red in our model.

We’re seeing the XLK Technology ETF (top) and the XLU Utilities sector ETF on the Daily Chart.

We have a color-rule algorithm based on Average True Range that defines the “swings” (up and down) in price.

While these funds – and all Sector SPDR ETFs – are strongly positively correlated, sometimes they diverge.

We can pick up on signals or clues from these departures from the norm – when funds “go their own way.”

Technology stocks have rallied strongly into August, continuing the uptrend with the market.

However, Utility names – which are thought to carry safety similar to bonds – diverged with a strong sell swing.

XLK Technology is part of the “Offensive” or bullish group while XLU Utilities are part of the “Defensive” group.

The main idea is that money flow continues to be bullish or “Risk-On” as evidenced by the divide.

When investors see a bullish or hopeful future, they tend to press their bets by expanding positions in offensive sectors like Financials and Technology and reduce bets in the safety sectors like Utilities.

The swiftness of the sell-off in Utilities suggests this transition is happening rapidly at the moment.

Continue watching this pair and note the generally bullishness it suggests at the moment for the broader market.

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Corey Rosenbloom, CMT

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