Like many sectors across the world continue to rebound strongly off the March lows, many investors are looking for stable sectors such as utilities, precious metals, and consumer goods. While it may seem intuitive to change capital in these types of areas, the graphics discussed below will demonstrate that it may be too early to bet on a continuation of the rally, even historically stable sectors such as global infrastructure.
the iShares Global Infrastructure ETF (IGF)
It may seem logical that, since the companies that provide the transportation, communication, water, electricity and services are in high demand and their services are essential to modern life, the stock prices would be rising. However, taking a look at the chart of the iShares Global Infrastructure ETF (IGF) below, you can see that the price of the fund is to test the influence of the resistance of the 50-day moving average.
The followers of the technical analysis attests to the idea that a return to a long-term average after having been oversold on the increased volatility is a regular occurrence. Given the model below, traders will likely expect the bulls lose conviction about 36 $and for the stocks in the sector to resume the downward trend that began when the 50-day moving average crossed below the 200-day moving average in March. The bearish moving average crossover is one of the most common sell signals used by active traders, and it suggests that the bears are now in control of the underlying trend and that the recent sale of shows signs of the next leg lower.
As the top of the convening of the IGF ETF, traders should focus attention on NextEra Energy, Inc. (NEE), which recently had its stock price has pushed below support of the 200-day moving average. The selling pressure also triggered a bearish crossover between the 50-day and 200-day moving average (represented by the blue circle), which is known as the death of the cross, and is used by many traders to mark the beginning of a major downward trend. From a risk management perspective, the bear is likely to establish stop-loss orders above the 50-day or 200-day moving average. Some might even take more risk by placing their stop-loss above the horizontal trendline near $248.
Dominion Energy, Inc.
Another top holding of the IGF ETF, which could capture the attention of active traders is Dominion Energy, Inc. (D). Taking a look at the chart below, you can see that the price is lower at the intersection of several major resistance levels, which is a sign that the bias in favour of the bears. Active traders will be more likely to continue to look for a move lower until common technical indicators turn positive again, or the closing price above $82.50.
The Bottom Line
The strong rally off the March lows has many traders talk of continuing the momentum and even about resume multi-year highs. However, as we discussed above, retracement of the down begins to find resistance near long-term averages, and important, trend curves, which could hinder the bulls’ efforts in sending prices upward. Based on the maps, at the present time, it seems that the bears are in control of the long-term dynamics of the global infrastructure sector.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.