Despite the sharp year-to-date rally in the broader U.S. stock market, some stocks are looking very healthy still for a continued push higher. I am noticing bullish continuation patterns in many areas of the energy sector (and parts of technology). Within energy, NRG Energy (NYSE:NRG) has been in consolidation mode now for over one month and NRG stock looks ripe to break higher for bullish trades.
One of my main criteria for valid trade entries, and thus an integral part of the analysis process, is the need for a stock’s sector or group to be trending in the same direction as the stock itself. The energy sector of the S&P 500 has trade in line (bullish) with the broader market so far this year but may soon start to outperform.
NRG stock has been outperforming the energy sector as a whole for two years now, however. This absolute strength in the energy sector coupled with relative strength in the stock makes NRG stock a good one to look at for a bullish breakout trading opportunity, by my work.
NRG Stock Charts
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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that NRG stock, after a big rally off the 2016 lows, worked its way back higher toward the previous all-time highs from 2007. While the ascent over this time has been steep in its angle, it has also been orderly; all along the stock had healthy pauses that allowed it to refresh and ultimately resume higher. Furthermore, note that the stock has held above its yellow 50-week simple moving average.
Lastly, at the bottom of the chart the blue line denotes the relative strength that the stock continues to show versus the energy sector as a whole. None of this is bearish.
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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we can see that the stock in late December 2018 briefly dipped below its yellow 50-day moving average but found support at the blue 100-day moving average. For most of 2019, the stock is once again holding above the 50-day. After finding resistance in early February, the stock slipped into its most recent sideways consolidation pattern but on Tuesday rallied nicely to the very upper end of resistance in a move that now looks like it could finally lift the stock higher past technical resistance near the $43 area.
Active investors and traders could look to buy NRG stock around the $43 area with a first upside target at $45 while any strong one day bearish reversal would be a stop loss trigger.
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