Oct 28 (Reuters) - US utilities shares have had a volatile year because of wild swings in interest rates. They are barely up on the year, but have risen nearly 9% this month alone. Technical analysis suggests they could be on the cusp of rallying further.
Technical analysis uses charts of past market moves to map out possible future price paths. Analysts look for support, a level that can stop a falling market from declining further, like a floor. They also look for resistance, which acts like a ceiling for prices. Both kinds of levels can become targets for traders.
To find these levels, analysts use past highs and lows, along with statistical tools. One is Fibonacci retracements, which are percentage-based calculations of levels a market often returns to after a big move.
Analysts also watch chart patterns. One is a gap, which appears when a market moves so quickly that it skips over normal price intervals and leaves a blank space on the chart.
Another common tool is the moving average. It averages market prices over a set period and updates constantly, so it rises and falls with the market. By smoothing out extremes, it shows the underlying trend.
The S&P 500 utilities sector index now looks set to meet a wall of resistance.
Last Thursday's high was 435.53 and Tuesday's high was at 435.75, according to data supplied by LSEG. These levels matter more because the June 1 low was at 435.93, a Fibonacci retracement sits nearby at 437.47, and the 100-day moving average is now near 439. That is the average of the past 100 days of prices.
A push through those levels and the next target would be the 200-day moving average near 449.
If the index falters, the picture changes. Initial support is at the October 16 high at 429.62 followed by 422.86, another Fibonacci retracement. The October 19 low was at 419.36.
If 419.36 gives way, attention may shift to the price gap left on October 6, near 408.53. A Fibonacci retracement at 408.25 sits almost on top of it. That is the 61.8% level, a percentage analysts watch closely.
A break below that zone would put the late-September low of 396.77 back in play. It would also raise the risk of a test of the 390-387 area. That would bring utilities close to bear-market territory, a term usually meaning a drop of 20% or more from a recent peak.
What the chart shows:
S&P 500 utilities index has rallied nearly 9% this month
A rise above 439 could pave the way to 449 and above
A fall below the 422.86-419.36 area can threaten 408.53 and below
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )
Terence Gabriel is a Reuters market analyst. The views expressed are his own. Editing by Burton Frierson and Jonathan Spicer
