We recommend a bearish trade on the Utilities Select Sector SPDR ETF (XLU). While retail and banking stocks rally in the face of bad news, income stocks are selling off. Profit-taking is probably creating some of the momentum, but risks from earnings and interest rates are also dragging on those stocks this week.

We like a bearish play on XLU because we expect it will respond flat to a rising market or decline in a bearish one as more earnings news streams in over the next few days. Either risk appetite is high and overvalued utilities will fall as investors snag financials, or traders will sell the market, which should support profit-taking momentum within the “safety” sectors in April.

‘Buy to open’ the XLU June 49 Puts (XLU160617P00049000) for a maximum price of $1.70.

This week contains several possible market catalysts. On April 14, the Bank of England (BOE) will release its Monetary Policy Statement, and the Consumer Price Index (CPI) will come out.

Expect the following reports on April 15: Chinese GDP, Chinese Industrial Production, Empire State Manufacturing Index, Capacity Utilization & Industrial Production and University of Michigan Consumer Sentiment.

Looking ahead, next week is big for housing data. On April 19 we’ll get the German ZEW Economic Sentiment, Building Permits and Housing Starts.

Existing Home Sales and Crude Oil Inventories will come out on April 20.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.

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