If you're a momentum trader keeping tabs on utilities stocks, here's something to chew on: three names in the sector are flashing overbought signals that could spell trouble ahead. The Relative Strength Index (RSI), a popular momentum gauge, is lighting up warning signs for these companies as of January 9.
Quick refresher on how this works: RSI compares a stock's performance on up days versus down days, giving traders a sense of whether a rally might be getting exhausted. When RSI climbs above 70, conventional wisdom says the stock is overbought and potentially due for a breather. Here are the three utilities stocks currently in that danger zone.
Enlight Renewable Energy
Enlight Renewable Energy Ltd (ENLT) is sporting an RSI of 71.9 after a blistering 27% gain over the past month. The stock closed at $50.35 on Thursday, up 1.6%, and is now dancing just below its 52-week high of $51.50.
Here's the twist: back on December 8, JP Morgan analyst Mark Strouse actually downgraded the stock from Neutral to Underweight while maintaining a $35 price target. That's nearly 30% below current levels, which makes the continued rally all the more striking. The stock's Edge ratings show a momentum score of 97.50, though its value score sits at a measly 12.37.
Hawaiian Electric Industries
Hawaiian Electric Industries Inc (HE) comes in with an RSI of 71.1 following an 11% surge over the past five days. Shares rose 2% to close at $13.66 on Thursday, approaching the stock's 52-week high of $13.91.
The recent catalyst? Reuters reported on January 6 that Hawaiian Electric reached a $47.75 million shareholder settlement related to the devastating Maui wildfires. That news helped propel the stock's latest leg higher, though the overbought reading suggests investors might be getting ahead of themselves.
Ellomay Capital
Ellomay Capital Ltd (ELLO) takes the crown with the highest RSI of the bunch at 75.5. The stock jumped 4.9% to close at $28.40 on Thursday, nearly touching its 52-week high of $28.49. Over the past month, shares have climbed about 27%.
The company gave investors something to celebrate on December 30, reporting third-quarter earnings of 93 cents per share, up substantially from 52 cents per share in the same period last year. That earnings beat seems to have fueled the stock's momentum, though the elevated RSI suggests the easy money may have already been made.
For momentum traders, these overbought readings don't necessarily mean sell immediately, but they do warrant caution. When RSI gets this extended, stocks become more vulnerable to profit-taking or any hint of negative news. Something to keep in mind as January unfolds.
