Still Cautiously Bullish? Look to Utility Stocks

This morning, I am recommending a bullish trade on OGE Energy Corp. (NYSE:OGE) , the electricity and natural gas utility company.

Despite the S&P 500 coming within 10 points of its prior all-time high yesterday, my indicators have softened slightly from last week and are now giving bullish-to-neutral readings. This slight downgrade means we want to be cautious with bullish positions, which is why a utility company is such a good choice.

Utilities are defensive stocks, and though the market got a boost this week following the Federal Open Market Committee (FOMC)’s policy decision this week, Fed Chairman Jerome Powell did cite a number of risks during his post-decision press conference.

Risk and Rate Cuts

The FOMC cut the federal funds target range by 25 basis points (0.25%) to a new range of 1.75%-2.00%.

While this was a widely-expected move, the underlying U.S. economic data don’t seem to support that cut. Consumer spending and consumer comfort both remain elevated, the housing market is looking strong thanks to low mortgage rates and the job market is in good shape.

For now, the market is taking this as a positive, but Powell noted that “business investment and exports have weakened amid falling manufacturing output,” largely due to “slower growth abroad and trade policy developments.”

I have been warning for a while now that growth in Europe is basically nonexistent, with many countries in the region on the verge of recession. China, reacting to slowing growth and the negative economic effects of the trade war, has recently implemented new stimulus measures.

And while September has so far bucked its historically bearish trend, it’s typically the latter half of the month when the markets start to decline. So, at least for the near term, I think exercising a bit of caution is prudent.

Breaking Above $44.50

OGE has been in a long-term uptrend since 2018, though it lost some of that momentum in April of 2018. Since then it has been bouncing above and below its 50-day moving average (MA).

Daily Chart of OGE Energy Corp. (OGE) — Chart Source: TradingView

Though it had a mixed earnings report in August 2019 — OGE beat earnings per share estimates and missed revenue estimates — the stock has managed to stay above its 200-day MA, which acted as support in August.

From there, it started making higher lows, and this week, OGE broke above its $44.50 resistance level. I think it could continue pushing higher as investors look for defensive stock positions, which is why I’m recommending a bullish call option.

Buy to open the OGE Energy Corp. (OGE) Dec. 20th $45 Calls (OGE191220C00045000) at $1.40 or lower.

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