Run for safety. That was the sentiment on Wall Street Tuesday
after President Donald Trump halted negotiations on a second stimulus package
until after the November election.
The decision came as a shock to financial markets given the
president tweeted just days earlier that the country must work together to
deliver further economic relief. Although Republicans and Democrats remain at
loggerheads about the size and details of additional stimulus measures,
Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi were
reportedly making progress in discussions and had been scheduled to continue
talks Tuesday.
While stocks reversed course to close lower following the
announcement, utilities names bucked the trend to finish higher. Investors view
the sector as a safe haven during times of uncertainty due to the group's
predictable earnings streams and high-paying dividend yields. Below, we take a
closer look at two leading utilities stocks and analyze their charts to
identify possible trading opportunities.
Edison International (EIX)
Californian utility giant Edison International supplies
electricity to around 5 million customers in a 50,000-square-mile area of
Southern California, excluding Los Angeles. Investors will be looking for the
power provider to improve on its second quarter earnings, where it reported a
profit of $1 per share – representing a bottom-line decline of 36.7% from a
year earlier. Analysts expect the company to disclose third quarter adjusted
earnings of $1.43 per share when it releases financial results later this
month. As of Oct. 7, 2020, Edison International stock has a market
capitalization of $20.37 billion, yields 4.85%, and is trading 26% lower year
to date.
Buyers pushed the share price above the top trendline of a
falling wedge pattern and 50-day SMA Tuesday in a move that may fuel further
upside momentum in subsequent trading sessions. Those who enter here should
anticipate a move up to the $62 level, where price may run into overhead
resistance from a multi-year horizontal line. Protect capital with a stop-loss
order placed somewhere below yesterday's breakout point at $52.
CMS Energy Corporation (CMS)
CMS Energy operates as an energy company though four
segments: electric utility, gas utility, enterprises, and enerbank. The $18
billion utility firm posted second quarter adjusted earnings of 49 cents per
share, with the figure surpassing analysts' expectations by 3 cents per share
and improving 48.5% from the year-ago quarter. CMS also reaffirmed its 2020
full-year earnings per share (EPS) guidance range of $2.64 to $2.68. Trading at
$62.89 and offering a 2.59% dividend yield, the stock has gained 2% on the
year, outperforming the sector average over the same period by around 3% as of
Oct. 7, 2020.
CMS shares broke out above an ascending triangle and the
closely aligned 50- and 200-day SMAs Tuesday. Moreover, the price has ample
room to move higher before consolidating, given that the relative strength
index (RSI) sits below overbought conditions. Traders who buy the breakout should
look for a retest of the all-time high at $69.12 but exit if the stock fails to
hold above the 200-day SMA around $61.
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