American Water Works Appears 'Head and Shoulders' Above Other Charts

Let's check the anatomy of this compelling chart that reveals why AWK is poised for an upside breakout.

American Water Works Co. (AWK)  is a utility and that makes many people think about yield and defensive sectors, but a strong upside move in the stock is what I think of when looking at the charts. Another water recommendation was Xylem (XYL) , which soared in recent days.

Let's check the charts of AWK, an AAP holding, out together.

In this daily bar chart of AWK, below, we can see that prices have formed a complex inverse head-and- shoulders bottom formation. A what? You've probably already heard of an inverse head-and-shoulders pattern. A complex pattern just involves more shoulders -- in this case two left shoulders followed by a head and then a right shoulder. We could say that this pattern has two necklines. One neckline across the $157 area and another neckline up around $172.

Prices are trading between the rising 50-day moving average line and below the declining 200-day line. The On-Balance-Volume (OBV) line shows strength from early May telling us of a shift to aggressive buying. The Moving Average Convergence Divergence (MACD) oscillator has crossed above the zero-line for a new buy signal.

 

In this weekly Japanese candlestick chart of AWK, below, we can see that the price decline this year has been a correction in a longer-term uptrend. Prices are just slightly below the declining 40-week moving average line. The weekly OBV line shows a decline from December but also bottoming action the past three months. The MACD oscillator has crossed to the upside for a cover-shorts buy signal.

 

 

In this first Point and Figure chart of AWK, below, we used daily price data. Here the software shows a potential upside price target in the $184 area.

 

 

In this second Point and Figure chart of AWK, below, we used weekly data. The price target in the $187 area.

 

 

Bottom line strategy: Aggressive traders could go long AWK at current levels and add on strength. Risk to $148.

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