We had last looked at a chart of utilities via the Utilities Select Sector ETF (XLU) on July 17th when momentum was diverging from price as was the trend as measured by the ADX line. Price didn’t react immediately to these divergences but eventually momentum won out knocking XLU down to where it sits today, $36.28.
Well we again are seeing a very slight divergence in momentum as we see in the top panel of the chart. I also noticed a larger divergence in the Money Flow Index, which is a volume-based momentum indicator. It is encouraging to see MFI bounce back from being oversold (below 20) and continue to advance up to 39 against the price action during the same time period. This may sound familiar, because we had the same discussion with RSI and On Balance Volume yesterday with EEM.
Next we see price is finding support near the 50% retracement level created between the April ’12 low and July ’12 high. We can also see slight resistance at the 38.2% retracement level that price knocked into last week.
Just like when observing the negative divergences back in July, we can’t assume price will immediate flip and start heading in the same direction as price and volume momentum. But it is these clues that we can begin to look for possible signs of a reversal.
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