The utilities sector is heating up, but for investors who prioritize momentum in their trading decisions, two stocks might be flashing a warning sign: Entergy Corp (ETR) and Xcel Energy Inc (XEL). Both companies have shown impressive performance, leading them to potentially be overbought according to the Relative Strength Index (RSI).
The RSI is a widely used technical indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the market. A general rule of thumb is that when the RSI exceeds 70, an asset is considered overbought.
Entergy Corp (ETR): A Strong Performer with a High RSI
Entergy Corp, a major electric utility company, recently reported better-than-expected quarterly earnings and raised its earnings outlook for fiscal year 2024. This strong performance, fueled by “outstanding results across operational, regulatory, resilience, and growth dimensions,” as stated by CEO Drew Marsh, has propelled the company’s stock price. In the past month, ETR shares have gained about 16%, reaching a 52-week high of $156.85.
As of November 1st, Entergy Corp’s RSI stands at a staggering 90.51, significantly above the overbought threshold. This indicates that the stock has been experiencing rapid and sustained upward momentum, potentially leaving it vulnerable to a correction in the short term.
Xcel Energy Inc (XEL): Navigating the Energy Transition
Xcel Energy Inc, another leading utility company, announced slightly disappointing quarterly earnings. Despite this, the company remains focused on its ambitious goal of navigating the “biggest transition in a century” for the US energy industry, as described by CEO Bob Frenzel. Xcel is strategically positioning itself to meet the growing demand for electricity needed to power new technologies, manufacturing, and the electrification of daily life.
Although Xcel’s stock has gained approximately 2% in the past five days, its RSI value currently sits at 75.43, edging close to the overbought territory. This suggests that the stock may be experiencing a period of accelerated upward movement, potentially setting it up for a period of consolidation or even a slight pullback.
Investor Considerations
While these two utility companies have exhibited strong performance and a high RSI, investors should be aware of the potential for a correction in the short term. The overbought status suggests that their current stock price might be unsustainable. Investors seeking to capitalize on the potential upside of these companies might consider waiting for a period of consolidation or a pullback in their stock price before making a purchase.
