Utilities stocks test new resistance high

THE SPDR Utilities ETF (XLU) has been making a strong comeback after a slew of large 3-wave structures, edging up slowly since March 2020 after the Covid-19 sell-off. In December 2020, prices started to fall and entered into a corrective pattern in the first quarter of 2021. Theoretically speaking, the correction was nothing more than a technical one as the Federal Reserve in 2020 was bent on maintaining the interest rate at near zero.

The utilities sector is heavily dependent on interest rate policies as it requires a significant amount of debt to sustain it. This means that if interest rates rise, utilities are subjected to a higher debt servicing ratio.

Despite the fact that utilities are a safer bet against unforeseen macroeconomic events, inflationary pressure last year has been the highest, and we could see funds flowing into the finance, technology and Industrial sectors.