Power stocks lost their juice
a couple of months ago but have surged back since then. The energy sector ended last week just 7.9% overvalued, with public utilities only 6.1% overvalued, a far cry from their Oct. 25 overvalued levels of 17.2% and 11.5%, respectively. It's high time to update my profiles for energy stocks and public utilities. 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.
Similarly, Valero Energy ( VLO) has gone from being 42.6% undervalued on Oct. 25, when it closed at $101.05, to just 14.9% undervalued now. It did trade as low as $94.60 on Oct 28. The rebound has pulled fair value down to $119.81 from $164.95. The weekly chart profile shifted to neutral with Friday's close above the five-week MMA at $101.65. Shares did not weaken to my quarterly value level at $84.08. If $101.65 holds, there is a potential trade to my quarterly pivot at $103.98, with my monthly risky levels above at $105.05 and $108.12. National Fuel Gas ( NFG) closed at $31.07 on Oct 25., when it was 41.4% undervalued. It traded as low as $29.25 on Nov. 11, but the 200-day simple moving average held. This is the only stock of this quartet that is more undervalued now than when I last wrote about it; at 46.0% undervalued, its fair value is now $60.32, up from $51.39. The weekly chart profile was negative on Oct. 25, but shifted to positive from $31.61 on Nov. 18 with the five-week MMA at $31.46. Shares stayed above my quarterly value level at $28.45 and now are above monthly pivots at $32.19 and $31.64, which indicates upside to my quarterly risky level at $34.17. If National Fuel were to reach that level, traders would want to book profits. Quicksilver Resources ( KWK) closed at $38.59 on Oct. 25 and traded as low as $32.97 on Nov. 8, just above my semiannual value level at $32.52. Shares were 40.3% undervalued and are now only 7.9% undervalued, pulling fair value down to $43.70 from $60.76. The weekly chart profile was negative, but shifted to positive from $40.36 on Nov. 25. Quicksilver opened this session above my quarterly pivot at $41.65, which indicates it has the potential to move up to my monthly risky levels at $45.54 and $47.43. If it does reach those levels, traders should look to book profits.