(Premium) Time for a Bounce in Utilities?
The Utilities sector has battled Financials all year for the last place trophy. It might finally be time for a relief rally.
On a relative basis, the Utes are trying to find support at the neckline from their 2021-2022 inverse head and shoulders reversal pattern. That level offered support on the initial backtest last March, and it would make a lot of sense for buyers to step in once again.
A brief surge in relative strength wouldn’t do much to change the longer-term downtrend, though. And it may not even lead to an absolute rise in the sector – we might simply see Utilities decline less than the rest of the market.
Can we really get too excited about the sector when so many stocks are still falling? AES Corp just fell back below the pre-COVID highs.
And Dominion Energy just collapsed to its lowest level in over a decade.
If we do see a change in the investing environment and we want to get long Utilities, keep an eye on Atmos Energy. This is the type of clean setup we’re looking for. ATO is near the top end of a multi-year consolidation range in the midst of a long-term uptrend. We should expect this consolidation to resolve in the direction of the long-term trend. If it’s above 120, we can be long with a target of 145.
Consolidated Edison is another that offers a favorable setup should Utilities turn things around. If it can break through 18 months of resistance at 101, we could see ED going all the way up to 114, which is the 161.8% retracement from the 2020 collapse. In the near-term though, the stock is trading near a flat 200-day moving average. That type of environment often leads to volatile, unpredictable moves that end in frustration.
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