Utility stocks have been the sector to run to lately as interest rate uncertainty has investors foraging for yields. While the utility sector has performed well, there are still some charts within the group that you should avoid for the time being.
FirstEnergy Corp. (FE)
FirstEnergy Corp shares have been ping-ponging between technical support and resistance as the stock has been unable to make a break out of its trading range. The range has been bound by the $34 and $32 levels going back to the post-earnings drop in price in late April.
The range-bound trading has FE stock in the lower 5% of utility stocks as far as relative strength goes, meaning that the 4.2% dividend yield that get paid to holders has a cost as total return for FirstEnergy is lagging heavily.
For traders, FirstEnergy is a dream as you can enter at $32 and exit trades at $34, grabbing a 6% return. Investors looking to hold for yield should seek income elsewhere.
NRG Energy (NRG)
NRG Energy shares have been bucking the utility sector strength, declining more than 20% after getting hit with a downgrade from UBS earlier in June. The stock has tried to recover some strength, but is in danger of the charts taking it down further.
A recent rally in NRG shares met with formidable resistance at their 50-day trendline. Weeks later, this trendline sits ready to halt the stock’s progress again just slightly above current prices.
Making matters worse, NRG Energy shares’ 200-day trendline is sitting at $13.20. A break below this technical support level will mark these shares as the only utility company to trade below this key support trendline, marking it for sellers and shorts to start taking the stock lower.
Duke Energy Corp. (DUK)
Duke Energy stock has been a leader among the Utility stocks, which is why it is of technical interest to us today. DUK shares have rallied almost 8% this month as investors have found safe harbor in the utility stock sector.
The problem with the rally in Duke Energy shares is that it has taken the stock to a short-term overbought reading of its RSI. Historically, this tells us that the stock has extended itself a little too far too fast and is ready to “revert” back to normal prices.
This reversions should ease DUK shares lower over the next few weeks, which means that investors that hold the shares may have an opportunity to lock in profits now with a plan to buy shares back at a lower price in the near future.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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