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Many Top Utilities Trade in the ‘Overbought’ Zone

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Relative strength index

The recent strength in utilities has pushed them into the “overbought” zone. The Utilities Select Sector SPDR ETF (XLU) has its RSI (relative strength index) at 78. RSI levels at extremes indicate an impending reversal in the stock’s direction. Among the top utility stocks, Duke Energy (DUK), American Electric Power (AEP), and Exelon (EXC) are trading in the “overbought” zone with their RSIs above 70.

XLU dma

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Moving averages

XLU is trading at $56.46, which is almost 4% and 8% above its 50-day and 200-day moving average levels, respectively. The premium to both of these support levels highlights the strength in XLU. The moving averages around $54.3 and $52.2 will likely act as a support for XLU in the short term.

We highlighted a bullish signal in XLU, indicated by “golden cross,” in What XLU’s Current Chart Indicators and Short Interest Suggest on August 27. Since then, XLU has risen more than 5%.

Implied volatility

On December 7, XLU witnessed an implied volatility of 14%—close to its 15-day average implied volatility. In comparison, the S&P 500’s volatility was close to 20%. Rising implied volatility is usually associated with a fall in the stock prices.

PG&E (PCG) and NRG Energy (NRG) experienced volatility of 66% and 28%, respectively, last week—some of the highest volatility in utilities.

To learn about XLU’s recent short interest trends, read XLU: Where Utility Stocks Could Go from Here.

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