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Texas Utilities Bounces Off Support

04/20/06 10:56:09 AM
by Arthur Hill

Utility stocks have been hit hard the last few months, but a recent bounce off support from Texas Utilities could buoy the group.

Security:   TXU
Position:   Hold

Texas Utilities (TXU) established support at 44 with four bounces in the last seven months (October, November, March, and April). A period of more than four months separates the first two bounces from the last two bounces (gray circle). Despite this time gap, the prices did not forget the prior support level and the stock consolidated right there in October-November. This is the last place that buyers stepped in, and the stock is once again attracting buyers at 44 to confirm support.

FIGURE 1: TEXAS UTILITIES. Could the recent bounce off support for TXU mean an upturn for the stock?
Graphic provided by: MetaStock.
 
In addition to support, the relative strength index (RSI) moved to oversold and bounced over the last few days. As Figure 1 shows, RSI does not easily become oversold. The stock declined from 58 to 44 in October, but RSI held just above 30 and did not become oversold. The March decline was more severe in RSI terms and this produced a relatively rare oversold reading (red oval). RSI has since bounced and is now challenging the red trendline extending down from the October high. This trendline shows declining momentum and it would take a break above 60 for RSI to fully turn the corner.

Looking back at the price chart, TXU surged over the last two days and broke the early April high. Upside volume was strong the first day and weak the second day. The decrease in upside volume on the second day is not a positive sign, and traders should keep a close watch on this bounce. Ideally, the stock should break resistance at 48 with good volume, and this would open to door to 53-54 (resistance zone). Failure to extend the surge on good volume would be negative, and a break below 44 would be most bearish for TXU.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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