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.