Seeking Relative Strength in Utilities

 | Aug 16, 2011 | 10:42 AM EDT
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The best way that I know to find potential trades in an upset market is to zero in on those sectors that show relative strength, then drill down and find the best stocks within them. I prefer stocks that have shown good relative strength during the recent drubbing or which have retraced to support (on an intermediate-term basis) with lighter volume. I also want some sign that the buyers coming back into the stock are for real.

Yesterday I was searching through the utility sector for potential buys on the coming small retrace that I expect to occur in the near future. I came up with four names from that sector, but only the first one fits into the category of holding up well during the recent market spill. That company is Connecticut Water Service (CTWS), and here's its chart.

CTWS, Daily

Despite all the pain experienced in most stocks, this one hardly gave up anything during the turmoil.

Another name in the sector is Public Service Enterprise Group (PEG), which definitely suffered a bit of a collapse, but on the weekly chart it tested a swing-point low on lighter volume and rejected it, trading higher by the end of the week. The lows have already been tested now, and there was nice volume expansion coming off those lows as buyers rushed in.

PEG, Daily

Brookfield Infrastructure Partnership (BIP) is a limited partnership that has a very different chart, as you can see.

BIP, Daily

Here you see a huge volume and wide price spread bar that now should provide support on a retrace. It is an all-over-the-map chart but a constructive one.

Finally, Dominion Resources (D), which really stretched to the downside but it did so on lighter volume than the previous day. As with Public Service Enterprise Group, volume swelled on the way back up as buyers flocked to the stock.

D, Daily

All of these utilities have two things going for them. They each have positive charts, and they are in a sector that is a relative outperformer. In this market, you need sector relative strength if you want to venture out and do some buying. You also want to wait for a retrace to do so. I believe that retrace is in the offing. A pullback of $30 or so points on the S&P 500 would likely provide some entries here, and that sort of retrace in this environment would be nothing out of the ordinary.

Until next time, as always, just keep trading the charts.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider CTWS,  to be a small-cap stock.  You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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