The trend channel remains up for the S&P 500 SPDR (ARCA:SPY), but the lows of that channel are being tested and prior support has been broken. Caution is at minimum warranted, and given the strong prior run up, moving some funds into more conservative dividend paying utility stocks could prove prudent. Seeking income doesn't necessarily mean giving up potential upside if the stock market does move higher from here, as these stocks are showing some technically positive signals. All paying greater than 3.5% dividend yields, these stocks generally attracts investors if the stock market falls, helping buoy the stock price.

Duke Energy (NYSE:DUK) has a 4.46% dividend yield, and has also managed to make overall progress higher over the last five months, putting in higher swing highs and higher swing lows. Trendline support comes in near $67.50, although $67 is likely to act as the pivot. A drop below $67 indicates the price slide could continue into support at $64, potentially followed by $60. A drop below $60 indicates a larger bear market decline is underway, and even a dividend yield isn't likely to keep investors from pushing the price lower. If the upward channel continues, the price is likely to meet stiff resistance near $75.

Public Service Enterprise (NYSE:PEG) has a 4.35% dividend yield and has been moving predominantly sideways since June. The price is currently near the middle of a range extending from $31 to just under $35. Longer-term the price has ranged above $29, therefore $29 can be used to limit the downside risk. The low in 2009 was $23.65, showing that even in very adverse conditions the stock hasn't experience the massive drawdowns seen in some other stocks and sectors. Capital gains are also likely to be limited though; the likelihood of a significant breach above the $37 52-week high is slim.

American Electric Power (NYSE:AEP) boasts a 4.12% dividend yield and a currently climbing stock price. Still off the 52-week high at $51.60 set in May the price has been making higher lows since September. Trendline support is near $47, but it will take a move below $45 to signal the short-term uptrend is over. $49 is a resistance area, but strong resistance is present between $50.50 and $51.60 as well.

Dominion Resources (NYSE:D) has a 3.64% dividend yield, although the smaller yield can be attributed to the stock's strong performance of late, putting in a new 52-week high at $68.86 on February 3. A potential triple top should be noted though--the price has tried to convincing clear $68 three times in the last three months and has failed. A drop below $63 will break support and signals the uptrend is over. On the other hand, a couple daily closes above $68 may provide enough confirmation for bulls to step in and keep buying, pushing the price to targets at $70 and $73.

The Bottom Line

Dividend paying stocks, such as utilities, often see their prices pushed higher, or hold steady, during initial times of uncertainty. Investors and fund managers seek the stability and income associated with these types of stocks. It should be noted though that if a full-fledged bear market develops, these stocks are not insulated for that, and will see price declines as well. Dividends help offset those capital losses, but likely not entirely. Therefore allocating additional funds to dividends stocks works best during uncertain times when a potential reversal is underway. Once the major indexes have confirmed their downtrend, moving to cash is the safest place.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Chart Advisor

    Four Chart Patterns To Watch This Week

    This week is likley to reveal if the S&P 500 is in a consolidation with the expectation of a move higher, or if it's topping out. Here's four ways to play either scenario.
  2. Fundamental Analysis

    The 3 Best Investments When Bull Markets Slow Down

    Find out why no bull market lasts forever, and why investors should shift their assets away from growth and toward dividends when stocks slow down.
  3. Investing Basics

    How And Why Do Companies Pay Dividends?

    The arguments for dividends include the idea that a dividend provides certainty about a company’s well being.
  4. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  5. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  6. Stock Analysis

    4 Energy Stocks for Income Seekers in 2016 (COP, CVX)

    Discover four energy companies that could maintain or even increase their dividends in 2016, making them the best investments for income-seeking investors.
  7. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  10. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  4. What are the dividend reinvestment options for a mutual fund?

    There are two primary choices for how investors can choose to handle dividend distributions made by mutual funds that they ... Read Full Answer >>
  5. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  6. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center