In this article, Gary Christie takes a look at U.S. indices throughout the past month and finds a utility stock forming some bullish technical patterns using our Technical Event® Screener within Technical Insight.
U.S indices are off to a rough November with month to date returns of appx. -2.18% for the S&P 500 and -5.38% for the Nasdaq. As traders exit their tech names we have seen money flow into more defensive sectors. The iShares Utilities sector ETF (XLU) has gained 1% this month and remains up 4.6% year-to-date compared to a decline of 1.0% for the S&P 500. Defensive stocks are popular during bearish phases of the business cycle as people need utilities like water, gas and electric no matter what the equity markets are doing. Using Recognia’s technical event screener, I searched for large cap utility stocks that have listed options available as large caps have been outperforming small caps since the summer months. My screen searched for bullish classic patterns and stocks with a Columbine Capital Quant Rank between 1 and 4 out of 10.
Public Service Enterprise Group (NYSE:PEG) was identified after prices broke above a symmetrical continuation triangle pattern:
This pattern tells me price has broken upward out of a consolidation period, suggesting a continuation of the prior uptrend.
A Symmetrical Continuation Triangle (Bullish) shows two converging trendlines as prices reach lower highs and higher lows. Volume diminishes as the price swings back and forth between an increasingly narrow range reflecting uncertainty in the market direction. Then well before the triangle reaches its apex, the price breaks out above the upper trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior uptrend.
Also, The Moving Average Convergence/Divergence (MACD) indicator has turned bullish.
The MACD (Moving Average Convergence Divergence) plots the difference between a shorter-term (12-bar) and a longer-term (26-bar) exponential moving average (EMA). Bullish and bearish events are generated respectively as the MACD fluctuates above and below zero to indicate whether prices in the shorter term are stronger or weaker than the longer term average.
A 9-period EMA of the MACD is overlaid as a "signal line" which smooths out the MACD to provide a clearer view of whether it's moving upward or downward. A bullish event is generated when the MACD crosses above the signal line, showing that the current MACD is actually higher than its average, a sign of increasing strength for the price.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
