Power stocks lost their juice
The Energy Select SPDRs (XLE) declined 17.8% from the high of $54.65 on Sept. 22 to the low of $44.94 into Oct. 20, and has been consolidating in this range since then. The XLE is 9.6% undervalued, with fair value at $56.64. The weekly chart profile is positive, with the five-week modified moving average at $49.97. I show a monthly value level at $49.45 with a monthly pivot at $51.91. If XLE moves above $51.91, the upside for a trade is to my quarterly risky level at $54.68.
Meanwhile, the Dow Utility Average stands at 403.03, having declined 13.6% from its all-time high of 438.74 set on Oct. 4 to a low of 378.95 on Oct. 20. The Utility Average has been above its 200-day simple moving average since mid-April 2003, which was last tested on May 12, 2004. Therefore, a trend below the 200-day SMA at 384.86 would be a sign that the utilities' bubble has broken. The rebound for utilities would continue, given a close this week above the five-week MMA at 400.30, because that would shift the weekly chart profile to positive, indicating a rebound to my quarterly resistance at 430.69 and monthly resistance at 433.17.
Three of the four stocks in the energy and public utilities sectors that I identified in late October as cheap stocks on the group's weakness -- those that were at least 40% undervalued -- would not satisfy that scan now.El Paso (EP) closed at $12.13 on Oct. 25, when it was a whopping 49% undervalued, and traded as low as $10.76 on Nov. 30. Now shares are just 15.5% undervalued, pulling fair value down to $13.44 from $22.43. The weekly chart profile remains negative with the five-week modified moving average now at $11.69. On Oct. 25 I indicated that buyers should emerge at my quarterly value level at $11.05; shares drifted below that key level, but have since rebounded. Holding $11.05 indicates potential strength to my monthly risky level at $12.35. Investors looking to buy additional weakness should consider doing so at my monthly value level, $10.51. I would liquidate all trades on strength to my quarterly risky level at $13.29.