Energy stocks have been in a sea of pain in 2015, and utilities have similarly had a losing battle against gravity after sharply rallying in 2013 and 2014. So it’s no surprise that shares of Duke Energy Corp (NYSE:DUK) — which is more of a energy/utility hybrid — are off 18% for the year.
Duke Energy stock, however, increasingly looks oversold — and right as we’re about to find ourselves in the midst of a big Federal Open Market Committee meeting.
To me, this spells opportunity on the long side.
While anything is possible at this stage, the Federal Reserve would likely put itself into a difficult corner if it doesn’t raise rates Wednesday, as it would further undermine its credibility and it would go against what the market is already pricing in.
But while the Fed may raise rates, it also probably will keep a dovish tone and thus remain postured to accommodate. Should this be the case, we could label Wednesday’s Fed move a dovish rate hike.
Why that’s important: It could weigh on the dollar for a while, and/or it could see interest-rate-sensitive stocks (read: utilities) get a bid.
For companies like Duke Energy, which still sports a 4.8% dividend yield, this could be a double positive.
Duke Energy Stock Charts
For some perspective, let’s note where DUK currently sits. Like any stock or asset that sees too sharp an incline, Duke Energy’s sharp rally into late-January of this year ultimately saw an equally sharp correction. This correction — which through the longer-term lens we can still label a mean-reversion move — has brought the stock back down toward a bigger-picture area of support.
The blue shaded area on the chart acted as resistance until 2012, when a break higher ultimately led to the overshooting rally in January.
From a momentum perspective, note that the MACD oscillator is presently at oversold levels last seen during the financial crisis lows in the spring of 2009. So from this angle, Duke Energy stock looks primed to bounce.
On the daily chart, note that in mid-November, DUK undercut its September lows. Those mid-November lows in the mid-$60s were revisited in early December, where a second bullish reversal took place. This led to a move that pushed the stock back above its 8- and 21-day moving averages over the past few days and right to an area of diagonal resistance.
Duke Energy stock is now coiling up below resistance, but also has defined support from November and early December. On the upside, the blue shaded triangle is an unfilled gap from Nov. 6, the top end of which in the low $70s may be a next upside attraction point.
Active investors and traders could look to initiate a long position around current levels for a move into the low $70s while respecting any sharp bearish reversal.
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