Parets: Risk-Reward In Utilities Favors Bears

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JC Parets of All Star Charts

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commented in a new report on Tuesday that the risk to reward profile within the utilities sector is unfavorable and points towards downside.According to Parets, utilities have been "the monster" in the stock market so far this year. The sector has been rallying since the start of 2016 and hit new all-time highs this month. However, moving forward, the risk to reward profile "favors the bears."Parets cited the chart of the S&P Utilities Sector Index and the recent highs that were made. He pointed out that at the new all-time highs this month, "momentum, as defined by a 14-week relative strength index, put in a lower high.""This bearish divergence and failure to hold on to those all-time highs should be the catalyst to send share prices in utilities tumbling in the coming months," he added.Parets further suggested that investors could find a short strategy favorable. Specifically, investors could short utilities if it is trading below both the early 2015 highs and an uptrend line from the 2016's lows."If we're above either of those, I see no reason to be short," he concluded. "Target-wise I think we head down 10% back towards all that former resistance last year in the mid-40s. That's where I'd be covering tactical short positions.