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ChristopherCarrollSmith
Jun 2, 2021 3:26 PM

Is it time for a utilities play? Long

RSPU/RSPArca

Description

Defensives have been outperforming the S&P 500 since March. If you believe the outperformance will continue, then now might be the time to buy, as they are approaching the support line.



I'm particularly watching utilities. In addition to being a classic defensive sector, utilities also have "growth" potential. They had a period of strong outperformance a couple years ago during the renewables boom. Presently they look cheap compared to other sectors. The equal-weight utilities to equal-weight S&P 500 ratio has made a large bullish divergence and is currently testing a support level. Might it make a double bottom here?



I particularly like NRG Energy, a Texas utility with a diversified basket of power generation capabilities, including fossil fuels and renewables. NRG is looking like it will make a breakout attempt soon:



It has a forward P/E of 6, a forward P/S under .5, and a P/FCF under 11. Dividend yield is over 4%. Open interest is bullish, and upside to the average analyst price target is 36%. This bad boy could seriously rip if utilities return to strength.

Utilities move somewhat in sympathy with oil prices, and oil prices are breaking out. That could prove to be a catalyst for this sector.

Comment

Oh look, NRG just broke out:

Comment

Looks to be moving with conviction despite broader market weakness.

Comment

XLU made a perfect trend line touch today and so far is holding just above the 200-day EMA. Calls at the $64 strike are pretty cheap.



Also note that the RYU/RSP ratio rallied, then sharply pulled back, and now is very close to another support level. And looking like it could rally again.

Comment

Quick update on NRG. It has been holding above the 20-day EMA. There have been several analyst price target hikes in recent days. If we can get a little pullback to touch the 20-day EMA, I think that could trigger another move up.

Comment

Goldman said in a note today that NRG is 50% undervalued. This caused the stock to spike in a big way. I still have a good number of shares, but I sold the last of my calls and locked in a chunky profit.

Comment

RYU/RSP ratio is working on getting across the trend line.

Comments
SuperTrader92
Thanks for the NRG Chart analysis.
FierceDragon
Whats the target price of NRG?? and where should i set my stop loss?
Thanks
ChristopherCarrollSmith
@FierceDragon, I'm personally holding 6/18 calls which I will probably just hold till expiration, and 1/21/2022 calls with 43.50 as my price target for an exit. I don't use stop losses; I just make decisions about when to enter and exit based on news and market conditions. However, your mileage may vary.
FierceDragon
@ChristopherCarrollSmith, Thanks for the reply!! Too bad I cant do option without margin accounts...guess i will hold NGR stock for a bit then!
SuperTrader92
@ChrisopherCarrollSmith Thank you for the input. I took NRG 34C 07/16 Call already up by 40%, took my capital out, and riding with the profits.
ChristopherCarrollSmith
@Sukhavasi, awesome. I always love to hear my work has helped someone make some money! :)
SuperTrader92
@ChristopherCarrollSmith, To the Moon 150% today. took this one.. NRG 34c 07/16 @$1.2. Love you, bro !!
ChristopherCarrollSmith
@Sukhavasi, haha, congrats!!! I am doing quite well in this trade as well. :)
SuperTrader92
@ChristopherCarrollSmith, still holding 436% today !!
ChristopherCarrollSmith
@Sukhavasi, fantastic. :)
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