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Trade of the Day: NRG Energy Is Good for a Breakout Bull Move

Serge Berger

Despite the sharp year-to-date rally in the broader U.S. stock market, some stocks are looking very healthy still for a continued push higher. I am noticing bullish continuation patterns in many areas of the energy sector (and parts of technology). Within energy, NRG Energy (NYSE:NRG) has been in consolidation mode now for over one month and NRG stock looks ripe to break higher for bullish trades.

NRG Stock: NRG Energy Is Good for a Breakout Bull Move

Source: urban.houstonian

One of my main criteria for valid trade entries, and thus an integral part of the analysis process, is the need for a stock’s sector or group to be trending in the same direction as the stock itself. The energy sector of the S&P 500 has trade in line (bullish) with the broader market so far this year but may soon start to outperform.

NRG stock has been outperforming the energy sector as a whole for two years now, however. This absolute strength in the energy sector coupled with relative strength in the stock makes NRG stock a good one to look at for a bullish breakout trading opportunity, by my work.

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NRG Stock Charts


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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the multiyear weekly chart, we see that NRG stock, after a big rally off the 2016 lows, worked its way back higher toward the previous all-time highs from 2007. While the ascent over this time has been steep in its angle, it has also been orderly; all along the stock had healthy pauses that allowed it to refresh and ultimately resume higher. Furthermore, note that the stock has held above its yellow 50-week simple moving average.

Lastly, at the bottom of the chart the blue line denotes the relative strength that the stock continues to show versus the energy sector as a whole. None of this is bearish.


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Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

On the daily chart, we can see that the stock in late December 2018 briefly dipped below its yellow 50-day moving average but found support at the blue 100-day moving average. For most of 2019, the stock is once again holding above the 50-day. After finding resistance in early February, the stock slipped into its most recent sideways consolidation pattern but on Tuesday rallied nicely to the very upper end of resistance in a move that now looks like it could finally lift the stock higher past technical resistance near the $43 area.

Active investors and traders could look to buy NRG stock around the $43 area with a first upside target at $45 while any strong one day bearish reversal would be a stop loss trigger.

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