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NEW HIGHS-NEW LOWS


Duke Energy At New 52-Week High?

09/29/11 09:25:24 AM
by Donald W. Pendergast, Jr.

Electric utility stocks may not be the biggest movers in the market, but they are still a good way to add diversity and stability to a stock portfolio.

Security:   DUK
Position:   N/A

While the broad US market indexes are still technically in a consolidation phase, there are still stocks that keep on driving higher, making new 52-week highs with relative ease. Here's a look at one such issue from the electric utility industry group. See Figure 1.

FIGURE 1: DUK, DAILY. Stocks making new 52-week highs are often good candidates for near-term covered-call writing.
Graphic provided by: MetaStock.
Graphic provided by: CS Scientific Expert Advisor from MetaStock 11.
 
Duke Energy (DUK) is one of the giants in the electric utility industry, and its shares tend to attract more conservative investors who desire a reasonable blend of capital gain and dividend growth potential over the long haul. The stock has the normal cyclical undulations like most other stocks, but the selloff and rally phases tend to be smaller in percentage terms than stocks from, say, the financial or energy sectors.

Nevertheless, at times DUK is capable of putting in major swing moves (higher or lower, as Figure 1 demonstrates) and is now in fact in week 8 of a rally that had its beginnings at the bottom of the July/August summer smash. DUK has gone from $16.87 on August 9, 2011, all the way to $20.05 (intraday high) as of September 27, 2011. That's a nearly 19% gain during a time when the .SPX is only up by about 9%, a major difference.

At present, all systems appear to be a go for DUK; long-term money flow (CMF)(100) is well above its zero line and is rising, as is the 21-day exponential moving average (EMA) for the stock. Not to mention the fact that stocks that keep on making new 52-week highs tend to keep on attracting new buyers (for a while, anyway), and these new buyers tend to keep driving the price higher until technical and fundamental forces begin to cool the fires of unbridled enthusiasm (aka greed) and the stock begins to consolidate and/or pull back to prior support.

DUK appear to be in good shape here, although that, of course, can change at a moment's notice. But with a 5.02% dividend yield, at least long-term owners of the stock will have some income credited to their accounts as they watch the day-to-day fluctuations of their stock portfolio.

Covered calls look good in DUK; consider selling one at-the-money (ATM) call option with one to two months of time premium for every 100 shares you plan to acquire (or already own) and then simply use the 21-day EMA (rising purple line on the chart) as your initial/trailing stop for the entire position until you're stopped out on a daily close below it. It's not the most complex investment/trading strategy around, but you'd be surprised at how often a simple setup like this (new 52-week high stock, run as a near-term covered-call play) can actually work. Just don't go overboard with your position sizing, okay? No sense in taking a bigger loss than is appropriate for your account size, just in case the trade doesn't turn a profit as you've anticipated.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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