Ten for Ten
      January 22, 2008

There are 10 sectors which make up the S&P 500 index and as of Friday all 10 have broken their short term trendlines. The negative turn of events in basic materials, energy and utilities sent the remaining three sectors down. This week we are highlighting utilities because of how sharp and sudden the downturn has been. In four trading days the index has dropped 55 points or slightly more than 10%. We are seeing some support at the 485 mark short term, but the brunt of the damage has been done. Subscribers to our website received exit signals for the sector on 1/16 last Wednesday. The key to sound money management is watching the short term trends to see what is developing. If negative momentum persists this will prompt the longer term trend line to break. The weekly chart below on utilities shows the index now sitting on the long term trendline. A break of that trend would be a big negative for the sector overall.

We hope you enjoy the weekly spotlight and if you would like to see us cover any specific sectors feel free to send an email to info@sectorexchange.com.  
   Sector Spotlight On
 UTILITIES

Dow Jones U.S.
Utilities Index
(Symbol: $DJU)

UNDERLYING EXCHANGE TRADED FUNDS (ETFS)

iShares Dow Jones U.S. Utilities Sector Index Fund  (Symbol: IDU)
Benchmarks to the $DJU index performance before fees and expenses.  This is a non-leveraged ETF.

General Risk Category: Growth

Ultra Utilities ProShares
(Symbol: UPW)
Seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of $DJU.  The use of leverage magnifies the risk profile of this ETF.

General Risk Category:
Aggressive Growth

UltraShort Utilities ProShares
(Symbol: SDP)
Seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of $DJU.

General Risk Category:
Aggressive Growth 

 
Daily Chart Weekly Chart

Trend – The Utility Sector had been bullish until last week. The sector joined eight of the 10 major sectors to break the uptrend. Looking at the daily chart above you can see the trend broke support near the 530 mark. The accelerated selling broke below the 200 day moving average and triggered a sell on any short term positions. Volume was 1.5 - 2 times the average on the move lower showing distribution. The weekly chart is still technically in an uptrend with the trendline currently at 485. With the aggressive nature of the selling we would have exited with the push below the 40 week moving average. However, we have kept this sector and some of the subsectors on our watch list. The growth potential is not over for this sector from a long term outlook.

Outlook - Interest rates have been declining creating some weakness in the sector, but the reality is the earnings outlook and a recession tapping on the door has most investors concerned. Thus, we saw some profit taking creep in over the last few weeks of trading. Fundamentally the earnings data continues to look solid, but we are cautious here near term as the overall market momentum is spilling over and creating some selling. The sector still faces issues from the regulators, sustainability and demand. The integrated utilities are more diversified and able to withstand the current and future challenges to the industry. Look for opportunities in the current pullback.

Sectors – Electric companies make up 53% of the sector and are interest rate sensitive. If the 10 year treasury yield continues to fall, look for pressure short term on these electric only utilities. The multi-utility companies are better positioned to weather the coming storm. Global utilities capabilities are central to economic activity with growth dependent on water and power. Massive investments are needed worldwide and could be the catalyst for growth both domestically and internationally. Nuclear power is seen as a clear alternative to supplying the world demands and an additional area of growth for the sector.
 
TOP 10 COMPONENTS
(as of 12/31/2007)		 SUBSECTOR WEIGHTINGS
(as of 12/31/2007)

 
COMPANY NAME

WEIGHT

Exelon Corp.

8.61%

Southern Co.

4.70%

Dominion Resources Inc. (Virginia)

4.37%

Duke Energy Corp.

4.04%

FPL Group Inc.

4.03%

Public Service Enterprise Group Inc.

3.94%

Entergy Corp.

3.74%

FirstEnergy Corp.

3.53%

Williams Cos.

3.40%

PPL Corp.

3.10%
COMPANY NAME WEIGHT
Electricity  74.14
Gas Distribution 11.19
Multiutilities 14.22
Water 0.45
 
 
 
 
 
 
* Disclaimer: This Sector Spotlight has been prepared solely for informational purposes and should not be construed as a recommendation to buy or sell any security. Investors cannot invest directly in an index. Index analysis and ratings are based upon proprietary systems and investors should complete their own evaluation of any market index and/or related security and consult a financial advisor prior to taking any action. As with all historical data, past performance is not an assurance of future results. All investments involve risk including loss of principal. Investors should have a clear understanding of their own risk profile and that of an investment prior to investing. Index descriptions are available on our website. Exchange Traded Funds (ETFs) listed on this page are for informational and reference purposes only. Investors should research and understand any investment product thoroughly prior to investing.
 
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