This safe-haven sector could be ready to 'collapse'

Stocks continued their slide into September, with all major U.S. markets closing down almost 3 percent Tuesday in correction territory. And unfortunately, traders say some traditional "safe-haven" stocks may not provide the safety investors may be looking for.

Technician Rich Ross of Evercore ISI said the S&P utilities sector, "normally a port in the storm," is now "teetering on the brink of a major technical collapse."

Utilities stocks, which can offer safety in turbulent times due their high yield and low exposure to the overall economy, have been one of the hardest-hit sectors of the S&P 500 this year, down 13 percent.

Ross said the utilities sector ETF (XLU) is about to break through its 150-week moving average at $40, a trend it has held above since 2010. XLU fell 2.7 percent Tuesday to $41.

"Do not own utilities, do not chase the yield here. These do not look good," Ross said Tuesday on CNBC's "Trading Nation."

The potential for a rate hike in the next year will hit utilities stocks hard, pointed out Andrew Burkly, head of institutional portfolio strategy at Oppenheimer. He also warned against counting on the consumer staples sector, which has more global and emerging market exposure.

Instead, Burkly recommends turning to telecom stocks, which have fallen 6 percent year to date.

"They tend to be more domestic plays, and they've been big underperformers so they yield pretty attractively at this point too," Burkly said, also on "Trading Nation."

For instance, AT&T yields 5.8 percent, and Verizon nearly 5 percent. That beats out yields of utilities stocks like ConEd (4.2 percent) and PG&E (3.8 percent).

On Wednesday morning, the utilities sector was the only S&P 500 sector in the red, losing about 0.3 percent.

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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