As Utilities Sell-Off, Are Safety Stocks Still Safe?

Four times since bounding back into bull market territory in mid-August, the Utilties Select Sector SPDRS ETF (XLU) has sold off for three days in a row. And in each instance, the XLU met with strong, short term buying. Up well over 3% in two days after a late August pullback. Finishing higher by more than 4% in four days after a similar three-day correction in early October …

With the XLU closing lower for a second day in a row on Thursday, traders and active investors who have been paying attention to ETFs like XLU, funds that have been bouncing along just inside bull market territory for the past several weeks, will likely be rooting for lower prices again on Friday. While XLU is already set to open in oversold territory when trading begins on the final trading day of the week, further selling and additional weakness will only improve the edges in the ETF, making a potential trade to the long side that much more attractive.

What is weighing down the utilities sector? Profit-taking in a number of utilities companies that were only recently at their highest levels of the year is playing a major role. Consider the sell-offs in utilities stocks trading in bull market territory such as Duke Energy (DUK), down four in a row and finishing in oversold territory for a second straight session, and PPL Corporation (PPL). Shares of PPL have closed lower for three out of the past four trading days and are set to open oversold when trading begins Friday morning.

On the other hand, still trading at its highest levels of the year and edging higher in Thursday’s trading was Oneok Inc. (OKE). The gas utility company is rated as neutral, but continued higher highs have put OKE at the lower end of neutral, far closer to “consider avoiding” than “consider buying.” Should there be additional selling in the rest of the sector, traders should be alert to the potential for profit-taking in a high-flying utility stock such as Oneok.

Quantified data and research on ETFs like XLU is available each evening after the market close. To learn more, click here.

David Penn is Editor in Chief of