Why Utility Stock AES Has the Potential to Pop

The stock tends to bounce after meeting up with this rising trendline support

Deputy Editor
Dec 20, 2018 at 2:55 PM
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Despite a recent pullback, shares of AES Corp (NYSE:AES) are still up 35.5% year-to-date, and has outperformed the S&P 500 Index (SPX) by more than 25 percentage points in the past three months. Plus, the utility stock just met up with its 80-day moving average -- a sign that, if history is any indicator, the stock could be due for a pop. 

The security has enjoyed a lengthy run above this moving average, with lows in recent months contained around the $14.40-$14.50 zone. However, broad-market headwinds of late have allowed this trendline to catch up with the equity's bull run, and AES has now pulled back to within one standard deviation of its 80-day moving average, trading today at $14.68. 

Over the past three years, there have been five similar tests of support at this trendline, after which AES stock was higher one month later 80% of the time, averaging a 4.53% return, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From current levels, a similar move would put the energy concern back up near $15.35. 

AES 80-Day Chart

AES could be due for some upgrades, which could help to fuel another bounce from this technical support. Two of the five analysts tracking AES have issued the security a "hold" rating, with one "sell" -- leaving plenty of room for possible bull notes to provide a boost.

What's more, the stock's 10-day put/call volume ratio of 1.13 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the high 92nd percentile of its annual range. This hints at a much healthier appetite for puts over calls as of late -- which could be a potential catalyst for additional tailwinds as bears begin to hit the exits. 

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