The Power Gauge’s Take on the Market’s Worst Sector

Can you name the market’s worst-performing sector this year?

Even if you don’t get the right answer, I bet you can at least get near the bottom. After all, despite an overall “bullish” setup, the market is still grappling with rising interest rates.

For example, mortgage rates are soaring. They just hit a 21-year high in August. And that extreme is creating chaos and uncertainty in the housing market.

So I wouldn’t be surprised if you said real estate.

But real estate is not the worst-performing sector. In fact, after a big swing up and down to start the year, the Real Estate Select Sector SPDR Fund (XLRE) is essentially flat in 2023.

It’s currently the second-worst-ranked sector in the Power Gauge.

Today, we’re focusing on the only sector with a worse ranking in our system. It’s already down 13% in 2023. And as you’ll see, this sector remains one we want to avoid right now…

In short, utilities is the worst-ranked sector in the Power Gauge. Specifically, it ranks 11th out of 11 sectors in terms of its Power Bar ratio today.

Regular Chaikin PowerFeed readers know the Power Bar ratio is a “quick glance” tool…

It breaks down all the stocks with Power Gauge rankings within an exchange-traded fund (“ETF”). They’re color-coded as “bullish” or better (green), “neutral” (yellow), or “bearish” or worse (red). And with just a glance, we can get our system’s overall take on the ETF.

In XLU’s case, the outlook is grim right now. Take a look…

As you can see, the Utilities Select Sector SPDR Fund (XLU) only features one stock with a “bullish” or better Power Gauge rating today. And 22 stocks in the ETF earn “bearish” or worse grades.

When we dig deeper, we see that the Power Gauge’s take has been spot-on in 2023…

The following chart shows XLU’s performance over the past year. The broad market has ripped higher in that period. But it’s a different story for XLU. Take a look…

XLU is down about 13% in 2023. And it’s down roughly 20% over the past year.

Fortunately, the Power Gauge is proving its worth for us as investors. To see what I mean, look at the bottom panel on the above chart…

XLU briefly flipped to “bullish” in late December 2022. Then, it did so again this past April and May. But for the most part, “neutral” or “bearish” ratings have prevailed for a year.

You’ll also notice that the Power Gauge has been almost exclusively “bearish” since mid-May. Since the system flipped to red on May 26, XLU is down around 5%.

That’s exactly the type of protection we want to see…

The Power Gauge watches closely for technical turnarounds. And in hindsight, late December and April and May of this year both could’ve been the starts of major reversals.

But as soon as those false reversals crumbled, the Power Gauge went back to its “bearish” outlook on XLU. And importantly, it kept investors away from this poorly performing sector.

XLU’s ugly Power Bar ratio and its poor performance this year are a telling combination. And in the end, it makes sense that utilities is the Power Gauge’s worst-ranked sector today.

That means our system expects the losses to continue.

So for now, it’s best to avoid XLU and use the Power Gauge to look for better prospects.

Good investing,

Vic Lederman

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