Relentless Selling in Utilities Sector Presents Buy Signal

Below plots the BMI which is a real-time indicator of institutional appetite for equities. It’s inching ever so closer to oversold levels.

Here it’s overlaid against the S&P 500 (SPY ETF):

Notice how when it reaches the green zone of 25%, stocks tend to rally hard soon after.

While just about all sectors are under pressure, the Utilities group is reaching extreme levels.

Forced Selling Hits Utility Stocks

Below details all daily Utility stock buys and sells. This is MAPsignals data, looking for unusual volumes as stocks fall, likely institutional footprints.

Below shows how Tuesday saw nearly 90% of the institutional universe log a sell signal. That’s extreme. I’ve circled prior similar events and overlaid these signals on the Utility Select Sector SPDR ETF (XLU):

We believe this action is “forced selling” that’s unlikely to last forever.

Looking back since 2013, there’ve been 37 days with 20 or more Utility stocks sold in a day. If you think that’s bearish, think again.

One month after this level of selling, XLU jumps 1.3%.

3-months later the average gain ramps to 8.1%.

A year later the historical returns have settled at a juicy 13.3%:

Look, no one has a crystal ball. However, data can help alert you to potential opportunities.

While many are fearful right now, this rare signal says better days are likely ahead for this oversold group.

Bottom Line and Explanatory Video

Utility stocks are seeing forced selling in our opinion. Expect a bounce given the historical evidence.

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Disclosure: As of the time of this writing, the author holds no positions in XLU at the time of this writing.