UTILITIES ATTRACT NEW MONEY AS MARKET WEAKENS -- SO DO OTHER DEFENSIVE STOCKS LIKE ANHEUSER BUSCH AND BROWN-FORMAN -- MEDTRONIC SHOWS LEADERSHIP IN HEALTCHARE GROUP

DEFENSIVE UTILITIES ATTRACT NEW MONEY... With the market showing every sign of rolling over this week, it's no surprise that three of the steadiest market sectors (outside of energy) have been consumer staples, healthcare, and utilities. Of those three, utilities have been the strongest. Chart 1 shows the Utilities Sector SPDR hitting a four month high this week. That's pretty good considering the selling in the broader market. The XLU:SPX ratio below Chart 1 also shows an interesting picture. The rising ratio during the fourth quarter of last year showed money flowing into defensive utility stocks during the market selloff. After flattening during the last four months, the ratio appears to be rising again. I suspect there are two reasons for that. One is the defensive nature of utilties. The other is that many of the leading utility stocks benefit from rising natural gas prices.

Chart 1

UTILITY BREAKOUTS ... Three of the strongest utility stocks are shown below. All three have hit 52-week highs this week. Two of them -- Exelon and FirstEnergy -- got brokerage upgrades this week. Exelon in particular is expected to benefit from rising natural gas and coal prices. The upside volume in Exelon was the more impressive of the two stocks. Both relative strength lines hit new highs as well. Chart 5 shows William Cos. also hitting a new high on rising volume. Its RS line broke out as well. WMB is closely tied to natural gas and is benefitting accordingly.

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ALCOHOL STOCKS ARE DOING OKAY... People may be drinking more these days. Or at least they're buying stocks tied to drinking. Two of the top recent performers in the consumer staple category are Anheuser Busch (BUD) and Brown-Forman (BF/B). The next two charts show both stocks moving toward the top of recent trading ranges. BUD is nearing a test of two previous peaks formed around 54. And it's rising on strong volume. Notice the big jump in its relative strength ratio (bottom of Chart 5) over the last month. Brown-Forman is also showing rising price action and better relative strength.

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MEDTRONIC IS HEALTHCARE LEADER ... Medtronic is one of the top gainers in the healthcare group over the past month. Chart 7 shows the stock on the verge of an apparent bullish breakout which would take place with a close over 51. Upside volume has been good and its relative strength ratio is rising. The monthly bars in Chart 8 put that recent upturn in better perspective. For one thing, Chart 8 show the stock having failed two attempts to break throug hits 2000 highs. Its relative strength line (solid line) also shows that the stock has been a poor performer since 2003. That, however, may be good news for the stock. It was a standout performer during the 2000-2002 bear market and a bad performer during the 2003-2007 bull market. That's would you would expect to see from a defensive stock. With the market rally showing signs of ending, that may explain why money is starting to flow back into this healthcare leader. This looks like a good time to be taking a closer look at defensive stocks that hold up better when the rest of the market doesn't. Most of those stocks reside in consumer staples, healthcare, and utilities.

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