Pounding the Table on a Deep Value Sector

This is a screaming buy right now… [TradeSmith Daily]( Pounding the Table on a Deep Value Sector By Lucas Downey, Contributing Editor, TradeSmith Daily The scariest words in finance right now are “interest rates.” Surging yields are causing turmoil in markets, and the utilities sector is the poster child for the carnage. A couple of weeks ago, I discussed the [extreme forced selling occurring in the sector](. And the risk-off narrative has only increased ever since. Today we’ll dive into the overall landscape for utilities stocks. Then we’ll see if the evidence still supports the bullish case. RECOMMENDED LINK [URGENT: “Second Wave” Window of A.I. Investments Closes Soon]( A “second wave” of A.I. investments is ready to pop – with 100X the potential of any gains so far. This could be the final chance to make a shocking amount of money in the early stages of the most important innovation of our age. [Go HERE for details]( Elephant in the Room Let’s begin with the obvious elephant in the room: interest rates. They are ripping higher. The U.S. 10-year Treasury yield has reached 4.8%, a level not seen since 2007: FactSet When rates rip, stocks dip. The S&P 500 has now pulled back 8% from its late July peak. But that’s peanuts compared to rate-sensitive utilities sector. Notice in the chart below how dramatic the underperformance has been for the Utility Select Sector SPDR ETF (XLU) vs. the S&P 500. While the market is up 13% year-to-date, this broad gauge for utilities stocks is down a whopping 19%, creating a 32% underperformance: FactSet This is quite a bit of added destruction since my last take when utes trailed the market by 25%. But, looking at 2023 only offers a glimpse of the sector’s relationship to the overall market. Going back decades, today’s action is making history. The XLU ETF is now trading at its largest relative underperformance to the S&P 500 since 2003. The lower the blue line falls, the greater the fall in XLU vs. the market. FactSet This freefall in price is creating panic selling. One of my favorite indicators confirms this is EXACTLY what’s happening. The chart plots the daily buy and sell counts for the utilities sector. Red lines are sell signals, and green lines are buys. The blue line is the price of XLU. On Monday, this chart nearly broke a record as 44 utilities stocks were sold in a single day. The only time we saw more was during the pandemic. Looking above, you’ll notice a total of 7 recent periods (including Monday) when selling was off the charts. September’s big selloff, with 24 utilities stocks sold in a day, looks more like a game of patty-cake compared with the 44 names dumped earlier this week. Which then begs the million-dollar question: Should we stay with the bullish thesis or abandon ship? RECOMMENDED LINK [This new A.I. tech is a retirement game changer]( A brand-new A.I. algorithm recently came onto the scene that can predict stock prices one month into the future with astonishing accuracy. Imagine if you had this kind of predictive power. It could be a complete retirement game changer. [Click here to get the full story and to see what this algorithm is saying the price of AAPL, NVDA, TSLA will be one month from now](. It's Time to Be Greedy By now you know that I’m a disciple of data. Reviewing history will help us draw a conclusion. As Warren Buffett famously said, we aim “to be fearful when others are greedy and to be greedy only when others are fearful.” History says that now is the time to be extra greedy. Here’s a reminder of what to expect after monster selling occurs in utilities stocks. First of all, look at points 1, 2, 3, and 4 in the chart above. Each time utilities got smacked, they ripped higher not long after. Today’s the exception. Since we started seeing major sell signals about two months ago, utilities have kept sliding. But let’s go back further into history. The table below shows that since 2013, after more than 20 utilities stocks are sold in a day, XLU soars an average of 5.3% a month later. Six months later it’s even better, with an 8.7% lift. Hold for 12 months and it’s a 14% ripper: With green like that, I can’t turn away from my bullish stance. Betting with this historical tailwind at your back says the deck is favorably stacked. Those fearful words “interest rates” don’t seem so fearful anymore. Always focus on the opportunity. Right now, that opportunity is in utilities stocks. Their valuation relative to the market is dirt cheap — and a seasonal fourth quarter rally will light a fire under this group. And that’s how TradeSmith’s data-driven process stays one step ahead of the crowd. Data helps us find the trades most investors aren’t even thinking about. On that note, I’d be remiss not to mention [Keith Kaplan’s Constant Cash Flow algorithm](. This trading system sells put options on stocks for income every single trading day. No matter what’s happening in the broad market, and even in times of extreme volatility, the Constant Cash Flow algorithm manages to find winning trades. So many winners, in fact, that the current open track record has a win percentage of over 99%. Heck, the Constant Cash Flow system just sold puts on a utility company in September, scoring a profit on the trade even as stocks were falling. Keith just opened up membership to Constant Cash Flow for new subscribers, adding on two ironclad guarantees for folks who sign up soon: - First trade wins or your money back… - 97% winning signals in your first year or get another year free. If you have any interest in this exceptional income strategy my friend Michael Salvatore [wrote about yesterday]( you have to see what Constant Cash Flow has to offer. [Details here.]( Lucas Downey Contributing Editor, TradeSmith Daily Get Instant Access Click to read these free reports and automatically sign up for research throughout the week. [25 Doomed Blue Chip Stocks]( [3 Stocks That Could Triple This Year]( [Download now on the Apple Store]( [Get It On Google Play]( [Customer Support: 866.385.2076](tel:+866-385-2076) | support@tradesmith.com [Request Customer Service](mailto:support@tradesmith.com) ©TradeSmith, LLC. All Rights Reserved. You may not reproduce, modify, copy, sell, publish, distribute, display or otherwise use any portion of the content without the prior written consent of TradeSmith. TradeSmith is not registered as an investment adviser and operates under the publishers’ exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith’s content do not constitute personalized investment advice. 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