Consolidated Edison, Inc. (ED) has weakened in the past five weeks, breaking nearby support and shorter-term moving averages. Is this a "normal" correction of a stock in a long-term uptrend, or is it the start of a bigger rotation by investors? Let's do our step-by-step look at the charts and indicators before we pull the plug on ED.
In this daily bar chart of ED, below, we could, until recently, see a pattern of higher lows and higher highs. Last month, ED broke its November low and closed below the cresting 50-day simple moving average line. The price of ED was weak yesterday (Tuesday) and is very close to testing or breaking the rising 200-day moving average line.
The volume of trading since mid-November has been a little heavier than normal, and the On-Balance-Volume (OBV) line has trended lower through December. So we have a number of indicators that have weakened.
In the lower panel is the trend-following Moving Average Convergence Divergence (MACD) oscillator, which turned lower in mid-November with a "take profits" sell signal. In late December, this indicator fell below the zero line for an outright sell signal.
In this weekly bar chart of ED, below, we can see that the stock has trended higher from the middle of 2015. Prices have broken below nearby chart support around $86 and are testing the rising 40-week moving average line around $83.
The weekly OBV line looks like it peaked in early December, and the weekly MACD oscillator has crossed to the downside above the zero line for a take profits sell signal on this timeframe. When you have daily scale sell signals and weekly sell signals, the odds increase that the prices weakness could gain momentum.
In this Point and Figure chart of ED, below, we can see the recent break down in price and a potential downside price target of $78.86. Also, we can see that the volume at price (left scale) shows that support may not materialize until we get into the mid-$70s.
Bottom line: ED has two technical challenges in the days ahead. A close below the rising 200-day moving average line around $83 seems very likely, and could precipitate further selling.
The next key hurdle is represented by the lows of early July and late September around $80. A weekly close below $80 will embolden the bears. Traders should be out of this stock and investors need to consider reducing their long exposure depending on their cost basis. Rotating into a technically attractive telecom with a similar or higher yield may be an option.