It's been a huge year for utilities stocks. Typically regarded as the most stable and boring part of the equity market, the S&P 500 utilities sector has risen 20 percent this year, making it 2014's best-performing sector save health care. But the charts indicate that the utilities rally will soon end, says Sterne Agee's chief market technician, Carter Worth.
This is a reversal for Worth, who accurately predicted back in May that utilities would stay strong for the next few months. And indeed, utilities stocks are up 7 percent since that time.
So why is he changing lanes now?
Worth's fresh bearish case starts with the chart of U.S. Treasury yields. Since utilities stocks are generally held for their generous dividend yields, lower Treasury yields are good for utilities stocks, as falling yields coax marginal investors to pick high-yielding stocks over bonds. A big driver of the utilities rally this year, then, has been the surprising drop in bond yields.
However, Worth thinks that yields are unlikely to fall from current levels, removing a potential driver for utilities stocks.