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Utilities still in play

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Today's 31% decline in PeopleSoft (NASDAQ:PSFT) $25.35 has my e- mail filling up with questions of "isn't this overdone?" I sure think so, but I also think it may speak volumes of what can happen in the technology area when expectations aren't met.

This "realization" seems to have had treasury YIELDS reversing course earlier today and we now see the benchmark 10-year YIELD ($TNX.X) trading to a session low. Last week we noted that MACD on this YIELD was rolling and that we might expect a little pullback to the 5.0% YIELD level.

10-year YIELD Chart - Daily Interval

The 10-year YIELD has been hovering near the 5.4% level, but unable to break above the 5.34% level on a sustained basis. With a "reality check" taking place in PeopleSoft (PSFT) and what could lie ahead for any other technology-related stock that issues an earnings/revenue warning, then a move back into Treasuries near term could see some marginally lower YIELDS. That could then have some of the higher YIELDing Utility stocks looking more attractive. In recent weeks, we noted some rather remarkable bullishness taking place in the Utility Index (UTY.X) and a little pennant has formed in this index.

Utility Index Chart - Daily Interval

I've yet to figure out last weeks bullish move above the 335 level, but it may be explained by a scenario that "smart money" was rotating to the utilities as the bullish % indicators for the broader markets were "overbought" and that we might see some earning's warnings from technology and that money would eventually look to hide-out in Treasuries and the higher YIELDING Utilities in the coming months. The UTY.X has given back very little of last weeks bullish move and after some consolidation may be getting ready for another burst higher.

For quick review... my esteemed colleague and fellow trader mentioned shares of TXU Corp (NYSE:TXU) $55 +1.83% as a "leader" in the utility sector. I mentioned shares of Ameren (NYSE:AEE) $42.26 +0.23% as a "mid-body" stock still in a base as a potential bullish candidate. You can review Eric's comments in the March 21st 01:00 EST Update. http://members.OptionInvestor.com/archive/intraday/032102_3.asp

Jeff Bailey
Senior Market Technician
Option Investor

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