Duke doesn't look like a national champion here -- Duke Energy (DUK) that is. Utilities have struggled to start the year. Stronger dollar? Stronger bonds? Well, neither has shown much give, so one has to wonder about the weakness in utilities and if it is done. A pullback in the dollar has helped facilitate a bounce, but the short-term looks lower on names like Duke. The chart seems to favor a re-test of the recent lows at the very least.
Focusing first on the daily chart, the recent bottom becomes very clear support. There is a double bottom just below $74, which is likely to become our target area once again for the anticipated pullback. The price pattern over the last few weeks is one of a rising wedge, which is breaking to the downside today in a bearish fashion. Furthermore, we see this bearish crossover in the slow stochastics while in overbought territory. Except for the first cross in late October 2014, this has been a fairly tradable pattern. While it has appeared several times, the best trades have seen the relative strength index (RSI) or the commodity channel index (CCI) in overbought/extreme territory. I would tend to play this conservatively and use a stop of 2% to 2.5% above the entry. Several of these triggers have seen potential returns of 5% or much more, so using a 2.5% stop loss seems reasonable. Even if only half the trades hit the 5% target, a trader will have a solid net result.
I would use the 4%-5% level as a place to take profits on half the position, then look to trail the position, making certain not to give back more than half the remaining gains. For instance, on this position, I would use a close over $79 as a stop and $74.25 as my first profit target. This first target is a little shy of the 4%-5% target, but I want to respect the double-bottom support levels. I would also use the 0 mark on the CCI as a secondary area to scale some profits. Duke has bounced just enough times when reaching that level after being overbought that I have to respect it.
There is more hope, though, on the weekly chart at first glance. Normally, I like to buy the slow stochastics bullish crossovers when in oversold territory like we see on the Duke weekly chart. Unfortunately, that hasn't necessarily been a catalyst for Duke. Really, the price pattern has been the steady influence. That crossover hasn't been a push or a pull against the longer trend. The stochastics has only mattered when overbought, as a move below the overbought area has been a good trigger to hedge or take profits and look to buy again when we hit the price trend line. That's where we are now and why I could see buying here.
The challenges of buying here are the resistance points. In the past, when the bollinger band width has expanded to these levels, the stock has just gone with a wide channel trading range over the next few months. Again, this still favors the bulls, but we look like we still need to test $74 in the next few weeks to stay consistent with the longer-term pattern. This action would play out well with the trade thesis bases on the daily chart.
Overall, Duke's longer-term outlook is still bullish as long as the stock doesn't close below $74 and trigger a bearish head-and-shoulders pattern with a target of $60. I don't think it is likely and I view $70 as the worst case pricing for 2015 unless the overall market corrects significantly. In the short term, I see no reason to buy under $79. I favor buying at $74 and even looking at a short until we reach that level. I would be comfortable covering and even going long at $74 on a bounce. The risk of buying into $74 greatly exceeds the risk of buying a bounce off $74 and paying a price 1% higher, as your stop will be much clearer.