Active Traders Are Betting on the Utilities Sector

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Active Traders Are Betting on the Utilities Sector

As the weather begins to cool throughout North America, many investors are taking advantage of the transition to increase their exposure to sectors such as utilities. Aside from shifting weather, increased anxiety over how the outcome of the November election would effect financial markets has many seeking to solid and predictable industries such as utilities. In this article, we look at charts from across the industry to see how traders will position themselves in the next weeks and months.

Key Takeaways

  • Nearby levels of support and resistance are driving greater interest in trading utilities stocks.
  • Bullish crossings between long-term moving averages indicate that utilities stocks may be in the early stages of a big upswing.

Utilities Select Sector SPDR Fund (XLU)

Many traders who are interested in specialized market areas like utilities often use exchange-traded products like the Utilities Select Sector SPDR Fund (XLU).Fundamentally, the fund has 28 interests in the electric utility, gas utility, multi-utility, independent power, and renewable energy sectors. As seen in the chart below, the bulls just pushed the price above the 200-day moving average, resulting in a bullish crossing between the 50-day and 200-day moving averages.

In case you are unfamiliar, the golden cross is a popular technical buy signal that many traders use to signify the start of a long-term rally. In the case of the pattern seen below, buy orders will most likely be placed as near to current levels as feasible in order to capitalize on the attractive risk/reward arrangement. Depending on risk tolerance and perspective, stop-loss orders will most likely be set below the psychological $60 barrier or the rising trendline at $57.50.

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Utility stocks are often preferred by investors over lower-dividend-paying equities because they offer consistent dividends. Following the 2008 financial crisis, the Federal Reserve reduced interest rates in an attempt to revive the economy. As a consequence, investors turned to utilities as a safer bet. Simply simply, utility firms are a good defensive investment during macroeconomic downturns.

The Southern Company (SO)

Southern Co. is one of the top holdings in the XLU ETF and may be of particular interest to active traders (SO).The price just broke above the resistance of an ascending triangle and its 200-day moving average, as seen in the chart below. The break and subsequent stabilization around new-found support indicate that the bulls have control of the long-term momentum and that current levels may give an attractive buying opportunity for those ready to accept a set degree of risk.

Duke Energy Corporation (DUK)

While a recent takeover attempt may have worked as a trigger to bring Duke Energy Corporation (DUK) to the notice of many traders, the chart pattern depicted below is another reason why it may be worth a closer look. Trend traders should take notice of how an ascending triangle formation and its 200-day moving average historically served as significant levels of resistance. The recent breakthrough, shown by the blue circle, is an important indication that the bulls are in charge of the momentum and that the forthcoming crossing between the long-term moving averages might be the signal required to initiate a big upswing.

The Bottom Line

Because of adjacent levels of support and resistance, the utilities sector is experiencing an increase in attention from active traders. Most traders will likely raise their exposure to significant businesses in this sector and place stop-loss orders below the specified support levels in the event of a rapid change in market mood.

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Casey Murphy did not hold any of the assets listed at the time of writing.

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