Stocks have been unapologetically soaring in the past year while the world has been faced with one of the most challenging crises of the past decade. Most stock market analysts and economists were expecting a slow and “L-shaped” recovery following the stock market crash in February and March of 2020. Not too long ago, no one could have predicted that the stock market could easily shrug off the potential economic crisis caused by this pandemic and it’s not surprising that this bull market is being labeled as one of the most hated bull markets of our recent times. Fast forward to 2021, to say that stocks have been experiencing a “V-shaped” recovery would be an understatement. Stocks have been soaring like never before primarily due to the unprecedented stimulus provided by central banks around the world and retail investors are becoming more and more interested in speculative names such as GameStop, AMC, Bitcoin ad the list goes on.
While the average investor/trader has been searching for the next big speculative play mainly because of fear of missing out, I’m here to remind you that there are still legitimate companies with a proven track record that could experience a stable and organic growth going forward.
One name that comes to mind is NiSource ($NI) which is one of the largest natural gas utility companies in the United States. This company’s core business strategy is to drive stable long-term growth supported by stable revenue streams and approximately $40 billion in infrastructure investment opportunities spanning the next 20 years.
As most of you already know, I’m a market technician and it would be irresponsible of me trying to analyze the fundamentals of this company so let’s leave that to the CFAs and fundamental traders! However, I would like to analyze the past and current price behavior of this stock to determine whether this is a good investment going forward or not.
As a market technician, I pay extra attention to the monthly chart when I try to pick a potential investment idea for my portfolio. In general, I always focus on names with solid fundamentals, a proven track record and a promising organic growth projected by the company, and I try to stay away from speculative names with an uncertain future no matter the temptation! Believe it or not the attributes I just mentioned always appear on the monthly chart if you pay close attention.
Notice how this stock rose over a 1000% from 2009 to 2020 with no significant pullback and price maintained and stayed above the 9-month exponential moving average or EMA9.
This type of price behavior only appears in companies with great management and stable organic growth. Even the global pandemic didn’t create too much downside volatility and the stock has been recovering in the past few months.
Now let’s take a look at the weekly chart to determine how to enter into a potential long term position trade or investment.
As you can see on the weekly chart, the stock consolidated and traded sideways for 12 months after the post pandemic crash in early 2020. The massive volume bars suggest that this could have been what most traders refer to as an accumulation phase by the so called “smart money”. The stock finally managed to break out of this consolidation zone last April and is currently in a process of testing the previous resistance zone and establishing a new support level.
So How to trade this?
The stock has been consolidating again and the chances are that it will test the most recent resistance level around $24-$24.50 per share. I would like to stay patient and see buyers show up once again to defend that level. That way I can confirm that the stock was indeed in a process of establishing a new support level and I won’t get caught in a potential failed breakout attempt. Regardless of your entry price, consider setting either a hard or mental stop loss below this level around $23.50!