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How to Read Southern Company’s Power Plant Plight

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How to Read Southern Company’s Power Plant Plight PART 1 OF 4

Behind Southern Company’s Chart Indicators and Short Interest

Utilities decline

Top utility stock Southern Company (SO) broke its rally on September 12, 2017, after gaining for eight consecutive trading sessions. The Utilities Select Sector SPDR ETF (XLU) fell 1.7%, while Southern Company corrected by more than 2% during the day. 

Utilities corrected likely due to the damage done to power lines by Hurricane Irma—equipment that now needs to be restored. The recent increase in Treasury yields also likely contributed to the fall in utilities, which are now trading at high valuations.

Behind Southern Company’s Chart Indicators and Short Interest

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SO stock has rallied ~8% over the past few weeks, despite ongoing concerns about its power plants. On September 12, 2017, SO was trading 3% above its 50-day moving average and at a marginal premium to its 200-day moving average. If the stock breaks below both these moving average levels, a bearish tone might set in for Southern Company stock.

Relative strength index

Before yesterday’s (September 12, 2017) fall, Southern Company stock was trading deep in the overbought zone, given its RSI (relative strength index) levels around 87. Its RSI now stands at 57.

Peer Duke Energy’s stock was also trading in the overbought zone, but its RSI fell from 75 to 50 on September 12.

Short interest

According to the latest report, short interest in Southern Company stock fell 2% on August 31, 2017. On August 15, total shorted shares in SO were 21.9 million, and they declined to 21.4 million on August 31.

Remember, any fall in short interest for SO suggests that fewer investors now expect the stock to fall from its current levels.

For more on utilities’ (VPU) latest performances, check out Market Realist’s series Weekly Utility Review: Could US Utility Stocks Go Higher?

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