3 Best Utility Stock Charts

06/15/2011 10:18 am EST


Thomas Aspray

, Professional Trader & Analyst

Utilities are heating up, and these three stocks have found strong support, creating attractive—and relatively safe—buying opportunities for income-minded investors.

Tuesday’s action in the stock market has caused the short term Advance/Decline (A/D) indicators to turn up from oversold levels. Clearly, bearish sentiment had reached levels that are normally associated with important turning points.

The futures’ early reaction to this morning’s CPI number has been extremely negative, causing the market to give up much of Tuesday’s gains. A close above Tuesday’s highs is needed to signal that a short-term low is in place.

During the correction, I have been monitoring what I’ve deemed “The Best Sectors for Summer,” all of which are back to first good support. 

In particular, the utilities sector, as tracked by the Select Sector SPDR - Utilities (XLU), and many of the utility stocks are now looking quite interesting. They have declined over the past month, now reaching good chart and retracement support. The longer-term volume patterns do suggest that this correction is a buying opportunity.

Click to Enlarge

Chart Analysis: The Select Sector SPDR - Utilities (XLU) has pulled back to test the breakout level (line a) from late April, as it had dropped just below $33. The fund reached a high of $34.30 in May and has now retraced 38.2% of the rally from the March lows.

  • There is even stronger support in the $32-$32.50 area with the long-term uptrend, line b, at $31.60
  • Weekly relative performance, or RS analysis, has completed a base formation, having moved above the resistance at line c. The RS is in a solid uptrend
  • Weekly on-balance volume (OBV) showed strong accumulation early in the year before breaking out to the upside. It has now pulled back to its weighted moving average (WMA) but is well above trend line support (line e)
  • Daily OBV (not shown) is positive and suggests that the correction is over
  • XLU has near-term resistance at $33.64-$34 with long-term resistance from 2008 in the $36-$38 area

Duke Energy Corp (DUK) is a $24.7 billion energy company that provides electricity to four million customers. It has paid its dividend for over 80 years and currently yields 5.3%.

  • The weekly chart shows that DUK has pulled back to retest the breakout level, line f, in the $18.20-$18.40 area
  • The weekly uptrend, line g, is in the $17.70 area
  • Weekly OBV is testing its uptrend, line h, and did confirm the recent highs
  • Daily OBV (not shown) has just moved above its weighted moving average, which is positive
  • Initial resistance is in the $19 area with long-term resistance from 2007 and 2008 in the $20.78-$21.30 area

NEXT: More Compelling Utility Plays; How to Profit


Click to Enlarge

Southern Energy (SO) is a $33.6 billion utility company that serves the southeastern US. The company shows a good dividend growth history and currently yields 4.8%.

  • It has pulled back from its recent high of $40.87 and tested the 38.2% support at $39.20 for several days
  • SO has held above the breakout level (line a), and the uptrend (line b) in the $39 area
  • Daily RS analysis turned positive in early May when the bottom formation (lines c and d) was completed
  • Daily OBV has pulled back to support at line e and turned higher. The longer-term volume analysis is also positive
  • Near-term resistance for SO is at $40.40, and once above the May highs, there is no further resistance, as SO made a new all-time high in May.

CMS Energy Corp (CMS) is a $4.9 billion utility company that operates primarily in Michigan. It has raised its dividend from $0.20 annually in 2007 to $0.84 today, which is a current yield of 4.3%.

  • The weekly chart shows an upward-sloping trading channel that goes back to late 2010, as support at $19.20 has just been tested
  • There is further support in the $18.45- $18.70 area
  • Weekly OBV surged sharply in April, overcoming resistance at line h. It has held up very well on the correction
  • Daily OBV (not shown) is still negative, though it has turned up
  • The upper boundary of the trading channel (line f) is in the $20.80-$21 area

What It Means: The Select Sector SPDR – Utilities (XLU) and these three utility stocks have reached good support levels where a normal correction would be expected to bottom. If the market continues to decline, the utility stocks could break slightly below the recent lows, but all should hold up much better than the S&P 500.

How to Profit:  The previously recommended buying zone in XLU was hit. Buyers should be 50% long at $33.16 and may now go 50% long at $32.86 with a stop at $31.48 (risk of approx. 4.6%).

Duke Energy Corp (DUK): Go 50% long at $18.48 and 50% long at $18.30 with a stop at $17.34 (risk of approx. 5.7%).

Southern Energy (SO): Go 50% long at $39.56 and 50% long at $39.24 with a stop at $37.78 (risk of approx. 4.1%).

CMS Energy Corp (CMS): Go 50% long at $19.52 and 50% long at $19.22 with a stop at $18.34 (risk of approx. 5.3%).

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS