Sustained energy for AGL as rise threatens to power up

Power and gas group AGL Energy has built up some spark in its share price in recent times, as this week's chart, produced by Australian Technical Analysts Association Victorian president Paul Ash, demonstrates.

Prior to the global financial crisis, AGL spiked at a high of $17.64, then fell to a low of $9.87 in March 2008. Since then the stock has been trading in a range with an upper price of between $16 and $16.60, and a lower support level of $13.

For the first three or so years of that range the price fluctuated mostly around $14. That would have given active traders with an eye on the chart the opportunity to buy round $13 and sell round $15. There was stability about that trading period, demonstrated by the fact that once the pattern was clearly established, the support level was rarely breached and the resistance level also held.

During the past 18 months, things have changed. The chart began to slowly strengthen as demonstrated by the rising 30-week moving average (the red line) accompanied by a series of higher lows and higher highs, eventually testing the upper resistance zone.

Despite the recent weakness, AGL's share price has not fallen back to the yearly low recorded on November 16, 2012, of $13.66, suggesting resilience. If that low is not breached, Ash says investors could expect to see AGL rally back to $16 after encountering some resistance at $15. After $16, the next price target is $16.60, which will put it above the upper resistance level and mean the trend is firmly in play. If it continues to rise, the old price pattern will be broken, with the possibility of a new solid upwards trend emerging. But breaking out of the current chart pattern will be difficult, Ash says.

To get an idea of the strength of an emerging upward trend look at how the price reacts around old resistance levels. If these are convincingly passed, it is more likely an emerging upward trend is strong.

On the fundamentals side, AGL has more than 3 million retail gas and electricity customers and is the second largest generation group, with nearly 6000 megawatts of capacity. It has recently completed the southern hemisphere's largest wind farm, Macarthur, in partnership with Meridian Energy, and taken complete control of Victoria's largest generator, Loy Yang A.

Net profit this year is expected to be between $590 million and $640 million, compared to an underlying profit of $482 million last year. Earnings a share are growing strongly and the dividend yield is 4.3 per cent, fully franked.

This column is not investment advice. rodmyr@gmail.com