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Utilities Fall for Two Straight Days: Is the Trend Reversing?

Vincent Kruger

AEP: How Is It Adapting to the Changing Utility Industry?

(Continued from Prior Part)

AEP falls below 50-day moving average

While financial media is flooded with news on how utilities (FUTY) have surpassed other sectors this year, investors are concerned about utilities’ high valuations. Increased expectations of a rate hike this year following upbeat US industrial production and home building data resulted in a correction of a couple of percentage points for utilities on May 17 and 18, 2016. American Electric Power (AEP) fell by nearly 4% while broader utilities (XLU) were slightly negative.

More importantly, the fall drove American Electric Power to break below its 50-day moving average, which may signal a bear raid soon. It will be interesting to see if AEP stays below this average. On the other hand, it is still trading at an 8% premium to its 200-day moving average.

Relative strength index

The recent stock climb has resulted in a surge in American Electric Power’s RSI (relative strength index). It currently stands at 49, after touching 30 in late April. RSI is a momentum indicator made up of values between zero and 100. Movements below 30 are considered to be in the “oversold” zone, and movements above 70 are considered to be in the “overbought” zone.

Utilities’ performance can be gauged by the iShares US Utilities ETF (IDU). While American Electric Power forms 4.4% of it, peers Exelon (EXC), PPL Corporation (PPL), and PG&E (PCG) each account for 4% of IDU.

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