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Yield Breakdown offers likely further outperformance in Utilities

GM=  Minor pullback in S&P, but largely a non-event as prices still above yesterday's lows and daily charts still remain positive with no evidence of overbought conditions on daily, nor sentiment getting to levels that might too frothy, along with no daily or weekly Demark indicators present which could spell the end to this rally-  Yesterday's close saw S&P and NYA both close up above prior days highs, with the NY COMP getting up to the highest levels since last August.  Intra-day overbought conditions alone are hardly a reason to sell into a rally of this sort with breadth having recently hit all-time highs, on the NYSE A/D "All stocks" and % of stocks over 200-day MA above 70%.  But the breakdown in bond yields IS a bit of a concern- These have diverged pretty massively with stocks of late, and while Europe has largely followed USDJPY and Gild yields lower, the US has been oblivious-  But at least some evidence of breakdown is necessary to adopt any sort of negative stance, even in the short run, and given the breakout in Energy and near-breakout in Materials on Dollar weakness of late, for now, that remains largely absent-  KEY FOR THIS MORNING concerns the BREAKDOWN below 1.70% in 10yr yields following what's happened lately in the UK with Gilt yields breaking down and Bund yields nearing 0.    All of this presents an attractive environment for this year's top performing sector- UTILITIES, which was written about Monday am in the Weekly Technical perspective and remains attractive. Stocks like PCG, D, WEC, CMS, NI are all attractive, while NRG has made a huge comeback and from a mean reversion perspective, also looks technically bullish-  This morning we're seeing strength out of EVHC, SCTY, P, SJM, LNKD, while RH on the downside, TESO, OREX and CHK all lower-  for S&P JUNE FUTS.   (rollover to Sept happening) 2105-6 impt, and until we see some evidence of a further breakdown on a CLOSING basis..  Pullbacks should be used to buy-  Let me know if you have any questions

No real evidence of any stock breakdown in S&P.. pullbacks likely contained near 2105 in June futs. and until we see closes under there, it pays to buy dips

 

10yr yields breaking down, matching what recently occurred in Gilts and Bunds down to 3 bps-  Stocks in US thus far are resilient and have ignored, but eventually, this divergence will have to reverse, either by stocks following suit, or bond yield breakdown proving false/temporary

 

Utilities should be favored for outperformance given the breakdown in Yields-  Still one of the better places to be within the Defensives after breakout out of a VERY attractive base-  XLU could get to 53-54 before this move is complete-  Favor XLU on bond strength/yield weakness