Market Update: Defensives Up, Equities Down, and Risk Flatlining

Andrew Nyquist

technical analysis, stock analysis, stock picks, stock charting, stock technical analysisBy Andrew Nyquist
Last week I posted a chartology of the Utilities Sector (XLU) projecting a path higher and stating that outperformance by defensive sectors ” is not typically a bullish near term indicator for the equity markets.” In translation: Be Careful.

Well, a little less than a week later we are seeing continued outperformance by defensive sectors such as Utilities, while equities pull back. In the chart below, I have plotted price from the 9/14 S&P 500 highs for the Utilities, Small Caps (IWM), and S&P 500. It is clear that deterioration began last week and followed through this week. Just look at the drop and underperformance of the high beta/risk small caps.

risk off chart, equity underperformance, defensive outperformance

Using the S&P 500 to gauge the broader market, I am seeing initial technical support at 1440, then 1430. But those are the obvious traditional lateral supports. I’m also seeing the potential for an A-B-C measured move to 1420ish (the initial breakout area). A sustained move under 1420 would likely cause technical damage that would need some time to repair.

s&p 500 technical analysis, s&p 500 technical support chart, october 9, 2012

Trade safe, trade disciplined.

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No position in any of the securities mentioned at the time of publication.

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