Electricity generation company AES Corporation (NYSE:AES) has been trading in a narrowing, albeit wide, trading range since 2009. The stock rose sharply off the 2009 lows and despite trading 8% below the August highs, remains up more than 120% since 2009. The stock has also been a relative outperformer versus its sector; the SPDR Utilities ETF (NYSE:XLU) currently trades roughly 55% above its 2009 lows.
Both the broader utilities sector as well as the stock price of AES Corporation, however, remain in decent looking up-trends from a longer-term perspective.
Near-term however AES Corporation may be due for a little consolidation. On Monday January 7 the stock opened right at the 50% Fibonacci retracement resistance level of the move from the July 2012 highs down to the November 2012 lows. This area also served as resistance in mid-October, before the stock slid 15% lower to form the November lows.
The stock opened for trading on January 7th roughly 1% above the previous trading day’s close. That, however, served as the day’s high, for the stock slipped lower for the rest of the trading session, closing -3.12% on the day. The stock also closed below the previous day’s trading session, leaving a so called ‘outside day’ or ‘engulfing’ candle behind on the daily chart. Utilities as a sector were the worst performer on the day on Jan. 7 with the SPDR Utilities ETF down 1.00%, which presumably added fuel to the sell-off in AES Corporation.
AES displayed slowing upside momentum since early December. This is best seen in the negative divergence between the Stochastic and Relative Strength Index momentum oscillators, compared to the stock price. While the stock price continued to rise into early January, the oscillators developed lower highs.
In summary, the large outside day in AES on Jan.7 (which happened to coincide with an important Fibonacci resistance level and slowing upside momentum) sets this stock up for a few percent of consolidation lower. I am targeting a quick 2% – 4% drop in the stock. Stops can be placed closer to $11.20.