Short Trade Idea
Enter your short position between $39.39 (the lower band of its horizontal resistance zone) and $40.50 (the upper band of its horizontal resistance zone).
Market Index Analysis
- CenterPoint Energy (CNP) is a member of the S&P 500 index.
- This index is forming a horizontal resistance zone with rising breakdown signals.
- The Bull Bear Power Indicator of the S&P 500 shows a negative divergence and does not confirm the uptrend.
Market Sentiment Analysis
Equity markets retreated yesterday, with futures mixed this morning, as Tesla, the first of the Magnificent Seven to report earnings, slid after posting a record sales surge while missing earnings estimates. IBM also disappointed investors and dropped after the close. T-Mobile and Blackstone will report before the bell today, while Intel will report after the bell. Meanwhile, US government debt hit $38 trillion, and accumulated the last $1 trillion at a record pace outside the pandemic. US President confirmed a meeting with President Xi next week, but slapped sanctions on the two largest Russian oil firms amid disappointment with an uncertain meeting with President Putin.
CenterPoint Energy Fundamental Analysis
CenterPoint Energy is a utility company providing electric and natural gas services to over 7,000,000 customers in Indiana, Ohio, Louisiana, Minnesota, Mississippi, and Texas.
So, why am I bearish on CNP ahead of its earnings data release?
The recent announcement of the sale of CenterPoint Energy’s Vectren Energy Delivery of Ohio business for $2.6 billion might address part of its debt load. Still, it also signals lower revenues from a profitable business unit. Valuations are high, CNP destroys shareholder value because its Cost of Capital (WACC) exceeds its Return on Invested Capital (ROIC), and I expect its negative earnings growth trend to continue.
CenterPoint Energy Fundamental Analysis Snapshot
The price-to-earning (P/E) ratio of 28.01 makes CNP an expensive stock relative to its peers but inexpensive compared to the S&P 500. By comparison, the P/E ratio for the S&P 500 index is 30.27.
Top Forex Brokers
The average analyst price target for CNP is $42.00, suggesting limited upside potential amid rising downside risks.
CenterPoint Energy Technical Analysis
Today’s CNP Signal
- The CNP D1 chart shows price action inside a massive horizontal resistance zone.
- It also shows price action trading between its ascending 0.0% and 38.2% Fibonacci Retracement Fan levels.
- The Bull Bear Power Indicator is bullish with a negative divergence.
- The average bearish trading volumes are higher than the average bullish trading volumes over the past six trading sessions.
- CNP advanced with the S&P 500, a bullish confirmation, but breakdown indicators are rising.
My Call on CenterPoint Energy
I am taking a short position in CNP between $39.39 and $40.50. CNP will report earnings before the bell today, and I expect the negative earnings-per-share trend to continue. Weak profit margins and high debt levels are likely to challenge CNP’s expansion plans.
- CNP Entry Level: Between $39.39 and $40.50
- CNP Take Profit: Between $31.99 and $33.00
- CNP Stop Loss: Between $42.00 and $43.26
- Risk/Reward Ratio: 2.84
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