Want to know the third best performing industry over the last three months? It's nothing you would have ever imagined. The water utilities stocks are up by 22.8 percent since March 27th, lagging only the real estate development group and the internet stocks. Normally we'd dismiss leadership from a utility group just as the result of volatility, but after examining the chart of the Dow Jones Water Utilities Index (DJUSWU), there's more to this than volatility. These stocks have created a pretty bullish chart that still has plenty of room for gains.

First, a look at the long-term (weekly) chart. Going back to March of 2000, the Dow Jones Water Index has gained a whopping 221% - an enviable return to say the least. But what has been equally impressive is the consistency of this index. While other sectors rocked and rolled through a turbulent bear market and an explosive bullish recovery, this sector just kept chipping away in subtle but significant ways. In this instance, slow and steady won the race. Now the index appears to have moved above a key resistance line (dashed) in what may well be a breakout move (something we never thought we'd say about water companies). The technical momentum is strong, so even though the index is well extended past its 200 day average (green), there's still the potential for continued, unchecked gains.

Dow Jones Water Utilities Index (DJUSWU) - Weekly

On the daily chart, we're seeing similar strength. The index has been riding its 50 day line (purple) since late last year. This recent bullishness has been on rising volume too, so there's clearly at least a little growing interest. The interesting part is that there is very little institutional ownership in these companies. If the market continues to suffer as we think it will, the funds and pensions may really start to migrate into this proven sector.....and that may be a bit of what we're seeing already. Although these stocks surged in April and May, the pullback last week has given any buyers an opportunity to get in at slightly better prices.

Dow Jones Water Utilities Index (DJUSWU) - Daily

Aside from the bullish chart, we're also impressed by the fundamentals that are propping these stocks up. The average P/E here is 9.6. Even by utility standards, that's a bargain. The ROE is 31.1%. As technical analysts, we deliberately don't incorporate the fundamental data into our analysis, but we do recognize that these numbers are the kinds of numbers that investors will like soon, if they don't already. That means a lot of buyers could be around the corner. In fact, it's a bit surprising that most of the market still hasn't found these diamonds in the rough.....we think they will if things get sour for most other stocks.

We're setting a target of 690 for the Dow Jones Water Utility Index. Stops on this bullish bias come with a close under the 50 day average, currently at 588. The challenge is in finding a way to take advantage of this trend. There's no way to buy directly into this obscure index, nor is there an ETF. There are some funds that are specialized to mirror an industry level, but it may take some search time. You may even consider a stock or a basket of stocks that accurately reflects the water utilities index.

Price Headley is the founder and chief analyst of BigTrends.com.