Widows and orphans beat Wall Street this week as the utilities SPDR (XLU) jumped almost three percent, the best move of any sector SPDR. (Financials were the worst because of that monster dilutive offering from Bank of America.)
The conservative group of power producers is also the best performer over the last month.
What makes this move quite unexpected is that yields have also gone up this week. Higher interest rates usually weigh on the utilities group because so many investors (see widows and orphans) buy the sector for their high dividend yields. So if yields go up, they rotate money out of the utilities group and into bonds.
You can see this relationship in this chart, which is tracking the utilities ETF vs. The ProShares UltraShort 20+ Year Treasuries ETF , which bets against treasuries and so essentially tracks the move in yields (reminder: as bond prices fall, yields rise). The two had a proper inverse relationship for most of the year until recently.
So what is the answer to this market puzzle? We turned to our keeper of Fast Money knowledge, whose long-running 'Gartman Letter' is the Sumerian Cuneiform clay tablet of trading history: Dennis Gartman.
"Utilities are going up because coal prices and crude oil are weak, while natural gas has been weak for a long while," said Mr. Gartman. "When your cost of production is falling and your price for your end result is holding firm, ain't such a bad business to be in." Gartman bought some of this electric trade late yesterday and will be adding to that position today.
But because this correlation is a rarity, Gartman cautions his clients that if the (XLU) trade moves against him by 2% he will be taking it off.
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Trader disclosure: On Dec. 11th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Najarian Owns (AAPL) Calls; Najarian Owns (BAC); Najarian Owns (DELL) Calls; Najarian Owns (FCX) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (GCI) Call Spread; Najarian Owns (INTC), Is Short (INTC) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (UUP) Calls; Najarian Owns (TXN), (TXN) Call Spread; Najarian Owns (CLF); Finerman's Firm Is Short (IJR), (IWM), (MDY), (SPY), (UNG), (KFT), (TLT); Finerman's Firm Owns (BAC) Preferred, (BAC), (BAC) Call Spreads; Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm Owns (CBY), (MSFT), (TGT); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm Owns (WMT); Finerman Owns (AAPL); Finerman Owns (GOOG); Finerman's Firm Owns (BSX)
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