The utilities sector is often a favorite of long-term traders due to the relative stability of the companies and low levels of volatility. As you will see in the charts below, prices across the sector have been trading within a consolidation pattern since recovering from the March lows. The buying interest, which has started to pick up in recent weeks, and nearby support levels are combing to make this one of top sectors to watch in 2021.

Key Takeaways

  • Nearby levels of support and resistance are creating lucrative risk/reward setups across the utilities sector.
  • The top holdings of the Vanguard Utilities ETF (VPU) could be of specific interest to active traders due to the recent crossover between the 50-day and 200-day moving averages.

Vanguard Utilities ETF (VPU)

Active traders interested in niche market segments such as utilities often turn to exchange-traded products such as the Vanguard Utilities ETF. Fundamentally, the fund comprises 66 holdings with a median market cap of $31.1 billion. With total net assets of $5.7 billion, it is a popular choice for those seeking to gain exposure to companies that distribute electricity, water, or gas, or that operate as independent power producers.

Looking at the chart below, you can see that the 200-day moving average (red line) has acted as a strong level of resistance for much of 2020. The October breakout was a clear signal that the bulls were gaining control of the momentum. Followers of technical analysis noted the bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle), which is a common signal used to mark the beginning of a long-term uptrend. The recent retracement toward the newfound support near $130 will likely be used by many as a buying opportunity. From a risk-management perspective, stop-loss orders will most likely be placed below $127.70 in case of a sudden shift in market sentiment or underlying fundamentals.

Chart showing the share price performance off the Vanguard Utilities ETF (VPU)
StockCharts.com

NextEra Energy, Inc. (NEE)

As one of the top holdings of the VPU ETF, NextEra Energy, Inc. (NEE) will likely be the focus of many traders over the weeks ahead. Looking at the chart below, you can see that the price has been consolidating near the combined support of two dotted trendlines.

Based on the current pattern, we would expect technical traders to hold a bullish outlook on the stock and most likely protect against future selloffs by placing stop-loss orders below $66.56 in case of a sudden shift in the company's fundamentals. Traders may also want to note the recent crossover between the moving average convergence divergence (MACD) indicator and its signal line because this could be used as confirmation of a move higher over the first several weeks of 2021.

Chart showing the share price performance of NextEra Energy, Inc. (NEE)
StockCharts.com

Duke Energy Corporation (DUK)

Another company within the utilities sector and major holding of the VPU ETF that cold be worth a closer look over the weeks ahead is Duke Energy Corporation (DUK). Looking at the chart below, you can see that the horizontal trendline has acted as an influential level of support and resistance since the stock recovered from the March selloff.

As discussed above, active traders will most likely use the bullish crossover between the long-term moving averages (shown by the blue circle) to mark the early stage of a major uptrend. Stop-loss orders will likely be placed below $84.52 to protect against any surprise moves lower.

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

The utilities sector tends to be very resistant to economic cycles because demand for utilities does not change much compared with most other industries, even in the deepest recessions.

The Bottom Line

The utilities sector is often favored by long-term traders because of easily identifiable trends, which are built up over time with relative low levels of volatility. The dotted trendlines discussed on the chart patterns above clearly identify levels that will be of specific interest to traders when determining the placement of buy and stop orders over the weeks ahead.

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