As the weather starts to turn colder across North America, many investors are using the change as an opportunity to adjust their exposure to sectors such as utilities. Beyond changing temperatures, rising uncertainty about how November's election results will affect the financial markets has many looking to stable and reliable niches such as utilities. In this article, we analyze charts from across the sector and try to determine how traders will be looking to position themselves over the weeks and months ahead.

Key Takeaways

  • Nearby levels of support and resistance are leading to increased interest in trading stocks in the utilities sector.
  • Bullish crossovers between long-term moving averages suggest that stocks in the utilities sector could be in the early stages of a major uptrend.

Utilities Select Sector SPDR Fund (XLU)

Many traders interested in niche market sectors such as utilities often turn to exchange-traded products such as the Utilities Select Sector SPDR Fund (XLU). Fundamentally, the fund comprises 28 holdings spanning electric utility, gas utility, multi-utility, and independent power and renewable electricity. As you can see from the chart below, the bulls recently pushed the price beyond the resistance of the 200-day moving average, which has also resulted in a bullish crossover between the 50-day and 200-day moving averages.

In case you are not familiar, the golden cross is a common technical buy signal that is used by many to mark the beginning of a long-term uptrend. In the case of the pattern below, buy orders will likely be placed as close to current levels as possible to maximize the lucrative risk/reward setup. Stop-loss orders will most likely be placed below the psychological $60 mark or the ascending trendline near $57.50, depending on risk tolerance and outlook.

Chart showing the share price performance of the Utilities Select Sector SPDR Fund (XLU)
StockCharts.com

Tip

Because utility stocks pay reliable dividends, investors often favor them over lower-dividend paying equities. After the financial crisis of 2008, the Federal Reserve cut interest rates in an effort to stimulate the economy. As a result, investors flocked to utilities as safer investments. Simply put: utility companies are a viable defensive choice for investors during macroeconomic downturns.

The Southern Company (SO)

As one of the top holdings of the XLU ETF, one company that could be of specific interest to active traders is Southern Co. (SO). Looking at the chart below, you can see that the price recently broke above the resistance of an ascending triangle and its 200-day moving average. The break and recent consolidation near new-found support suggest that that the bulls are in control of the long-term momentum and that current levels could present an ideal buying opportunity for those willing to assume a defined level of risk.

Chart showing the share price performance of The Southern Company (SO)
StockCharts.com

Duke Energy Corporation (DUK)

While the attention from a recent takeover attempt may have acted as a catalyst to put Duke Energy Corporation (DUK) onto the radar of many traders, the chart pattern shown below is another reason that it could be worth a closer look. Trend traders will most likely want to make note of how the combination of an ascending triangle pattern and its 200-day moving average previously acted as strong levels of resistance. The recent breakout, shown by the blue circle, is a key indicator that the bulls are in control of the momentum and that the upcoming crossover between the long-term moving averages could be the signal needed to trigger the start of a major uptrend.

Chart showing the share price performance of Duke Energy Corporation (DUK)
StockCharts.com

The Bottom Line

The utilities sector is seeing a rise in interest from active traders due to nearby levels of support and resistance. Most traders will likely look to increase exposure to major companies in this sector and set their stop-loss orders below the mentioned support levels in case of a sudden shift in market sentiment.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.