As bullish investors started to get a foothold against the relentless selling pressure at the end of 2018, many turned their attention to dividend-paying stocks to start 2019. Attractive fundamentals combined with yield made for an interesting case in early January, but given the strong price gains and closes near major resistance levels, it could be best if investors proceed with caution. The paragraphs below will take a look at three charts suggesting that the bounce is nearing an end and that a move lower could be in the cards.
iShares Select Dividend ETF (DVY)
With the rise in popularity of exchange-traded products such as the iShares Select Dividend ETF (DVY), it is possible for traders to analyze broad swaths of the financial markets fairly easily. Based on the chart below, you can see that the strong bounce after reaching oversold territory in early January led the price toward the major resistance of the 50-day moving average and a horizontal trendline. The close near $93.58 is now providing bearish traders with a lucrative risk/reward and could spark a flood of sell orders over the coming weeks.
Followers of technical analysis will also likely want to pay attention to the bearish crossover between the 50-day and 200-day moving averages, known as the death cross (shown by the blue circle), because it is commonly used as a long-term sell signal and oftentimes marks the beginning of a major downtrend. Based on this chart, the bulls may want to remain on the sidelines until the price is able to clear the identified resistance levels and notch several closes above $96.
CenturyLink, Inc. (CTL)
Active traders who are interested in a certain market segment will often look to the top holdings of popular ETFs such as DVY. As a top holding, CenturyLink, Inc. (CTL) will likely be of specific interest because the price has recently fallen below several key levels of support and looks poised to make a move lower. The fall below its 200-day moving average in late 2018 resulted in a bearish crossover between the 50-day and 200-day moving average (as shown by the blue circle).
As noted in the case above, the recent bounce toward the new-found levels of resistance could provide bearish traders with a case for entering a short position with defined levels for placing stop-loss orders to protect against a move higher. Fundamentally, if a dividend cut were to happen, it would likely send the price sharply lower and lead to significant gains for the bears.
Oneok, Inc. (OKE)
Another top holding of DVY that will be of specific interest to active traders is Oneok, Inc. (OKE). Taking a look at the chart, notice how the bounce in 2019 has pushed the price toward the resistance of a descending trendline and its long-term moving averages. Like we discussed before, these levels will likely be used by the bears for determining the placement of entry and exit orders.
The Bottom Line
While the dividend-paying companies seem to be in vogue with investors at the moment, based on the charts discussed above, it appears as though traders are thinking that this may not be the case. Nearby resistance and long-term sell signals could be pointing to moves lower over the weeks or months ahead.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.