Plug in to American Electric Power for This Surge Higher

 | Jan 30, 2017 | 10:09 AM EST
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The Utility Sector has been under pressure over the past six months. American Electric Power (AEP) peaked in early July and did not bottom until early December. But now the correction looks to be over, and AEP is ready to move higher.

In this twelve-month daily bar chart of Action Alerts PLUS holding AEP, below, we can see both the price erosion in the back half of 2016 and the subsequent bounce and consolidation. Prices broke below the rising, 50-day moving average line in August, but closed back above the flat, 50-day average in December. Now the slope of the 50-day average line has turned positive. AEP is still below the declining, 200-day average line, but it will only take a rally to $65 to break above that long-term, smoothed trendline.

Looking at the On-Balance-Volume (OBV) in the middle panel, you can see that the line did not peak until late September -- well after the early-July price high. The OBV line only dipped for about two months, and the decline was very modest. The line started up again in early December.

The overall movement of the OBV line tells us that even when prices declined for five months, investors in AEP largely stayed with their positions. In the lower panel is the Moving Average Convergence Divergence (MACD) oscillator, which signaled a cover-shorts buy signal in late November and an outright go-long signal in December.

This three-year weekly chart of AEP, above, shows a stock that is ready to rally. Yes, prices are below the declining, 40-week moving average line, but it won't take much of an advance to break above the line. The weekly OBV line has been positive for the past three years, and is close to making a new high for the move up. A rising OBV line is a sign of accumulation, as investors trade more shares of AEP in the weeks when prices close higher. The weekly MACD oscillator signaled a cover-shorts buy signal.

Bottom line: Looking for yield and capital appreciation? Consider going long AEP at current levels and on strength above $64. Risk a close below $60. The $71 to $72 area is our upside price target for the first half 2017.

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