Thursday was brutal for the bulls as the bears pushed the DOW some 266 points lower and the entire list of S&P 500 sector ETFs suffered at the hands of the bears.

Only the Utilities (XLU, quote) sector ETF was basically flat on the day down only 0.38%.  The XLU as of yesterday’s maintained its outperformance of 9.9% YTD compare to the S&P 500 (SPY, quote) 2.1% YTD.

Is the XLU a good place to hide?  Let run through couple of pros and cons for XLU.

When it comes to sector ETFs we like to see significant inflows to a particular sector that signals a trend. The XLU is only seeing $479 million inflow YTD which puts the sector ETF inflows middle of the road but is increasing.

In comparison both SPDR Sector Healthcare and Energy ETFs have seen over double the XLU inflows. Although the XLU has performed relativity well yesterday ideally we would to see how it handles another down day.

The XLU does have several things going for it right that could help accelerate investors to flock into the XLU.

The XLU pays 3.53% in dividends compared to the SPDR S&P 500 ETF’s of 1.90% in dividends.

Utilities have seem to have caught many traders off guard with their strong performance, we seen this in Wisconsin Energy’s (WEC, quote) when our scanners alerted us of unusual option activity as large investors were trying to catchup netting us a nice triple.

If market participants continue to flock to defensive and risk off we can see XLU flows increase in short order.

One other thing utilities have going for them is the bond rate continues to remain below the 3% level push the utilities names in the spots light as a bond proxy.

Since we are likely in the middle of trend shift in this five year old bull market we want to get in front of the trend by taking a position in the sector early and reduce our risk by using options.  We do not think the bull market is over but it only healthy for a correction or two through the bull run.

Login into your account to see how we are playing the XLU.