Americal Electric Power Co. (AEP), apart from being an S&P500 constituent, it is also a part of the NASDAQ 100 group. This company engages in the business of generation, transmission and distribution of electricity. It operates through the following segments: Vertically Integrated Utilities, Transmission & Distribution Utilities, AEP Transmission Holdco and Generation & Marketing. The Vertically Integrated Utilities segment engages in the generation, transmission and distribution of electricity for sale to retail and wholesale customers through assets owned and operated by its subsidiaries. The Transmission & Distribution Utilities segment engages in the business of transmission and distribution of electricity for sale to retail and wholesale customers through assets owned and operated by its subsidiaries.
This goes the fundamental introduction to the stock. However, a look at the broad technical setup throws some really interesting insights.
To begin with, a look at the Relative Comparison Chart highlights the gross underperformance of AEP against the broader S&p500 Index. As evident from the above chart, while S&P500 Index returned 20.86% on a YTD basis, the stock, AEP returned just 6.23% over the same period.
This shows that there might be some catch-up to play when it comes to AEP’s price if this is supported on the technical charts.
The above chart is on the Weekly timeframe. It shows AEP that the price action on the charts has resulted in the formation of a large Symmetrical Triangle. Symmetrical Triangles are largely neutral formations; futures price moves cannot be predicted unless they actually happen. This being said, it would make more sense to have a deeper look at the technical setup. This may not help us predict the direction of the breakout, but it certainly helps us in determining the most likely direction of the breakout as and when it takes place.
The structure on the charts looks largely favorable for a price up- move despite the stock being in the otherwise neutral Symmetrical Triangle formation.
The stock has shown a Quadrant Crossover on the weekly RRG by moving inside the Improving Quadrant when benchmarked against the broader S&P500 index. Whenever a stock rolls inside the improving quadrant, it hints at the potential end to the relative underperformance of the stock. We can fairly expect the relative outperformance of this stock to begin against the benchmark.
The weekly MACD has shown a positive crossover; it is now bullish and above the signal line. The RSI is neutral and does not show any divergence against the price.
If the present formation resolves on the expected lines, the classical tools that are used to measure the price target implications from any pattern hint that the stock may test its previous high points of 104-105 levels again.
All the key moving averages, 50-, 100-, and the 200-Week MA are in close vicinity at 84.72, 84.96, and 52.73 respectively. Any move below 80 will negate this view on the stock.
Milan Vaishnav, CMT, MSTA,
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)