American Electric Power Company Inc (NYSE: AEP)

American Electric Power Company, Inc., a public utility holding company, engages in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers. The company generates electricity using coal and lignite, natural gas, nuclear, and hydroelectric and other energy sources. It also supplies and markets electric power at wholesale to other electric utility companies, rural electric cooperatives, municipalities, and other market participants. As of January 28, 2015, the company delivered electricity to approximately 5.3 million customers in 11 states. In addition, it transports liquid, coal, and dry bulk commodities primarily on the Ohio, Illinois, and lower Mississippi rivers. The company owns and leases approximately 2,300 barges, 37 towboats, and 18 harbor boats.

Take a look at the 1-year chart of American (NYSE: AEP) with the added notations:

1-year chart of American (NYSE: AEP)

AEP rallied strongly higher from its August low. Once the stock peaked, and then fell lower into March, the following 3 months found AEP hitting support at $54 (green). That same $54 support was also a resistance back in July. Now that the stock looks like it may be falling down to that support level again, traders should be able to expect some sort of bounce. However, if the $54 support were to break, lower prices should follow.

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The Tale of the Tape: AEP has a key level of support at $54. A trader could enter a long position at $54 with a stop placed under the level. If the stock were to break below the support a short position could be entered instead.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach