Short Trade Idea
Enter your short position between $102.05 (Friday’s intra-day low) and $104.83 (Friday’s intra-day high).
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Market Index Analysis
- Ameren (AEE) is a member of the S&P 500 Index.
- This index retreated from record highs, and a bearish price channel is forming.
- The Bull Bear Power Indicator of the S&P 500 Index turned bearish with a descending trendline.
Market Sentiment Analysis
Equity futures point to a bullish start following Friday’s mid-session reversal, with beaten-down AI names leading the way. Hopes for an end to the longest shutdown in US history add to bullish sentiment. Consumer sentiment dropped to a three-year low, and markets await the release of core inflation reports that the government did not publish. Investors will receive more crucial earnings reports this week, led by CoreWeave, Oklo, Rocket Lab, The Walt Disney Company, and Paramount Skydance, but should brace for volatility ahead.
Ameren Fundamental Analysis
Ameren is a utility company with 2.4 million electricity customers and 900,000 natural gas customers. It also owns the Bagnell Dam.
So, why am I bearish on AEE after its earnings release?
The third-quarter earnings report showed a nice increase in adjusted (non-GAAP) net income to $592 million, with earnings per share of $2.17, up from $500 million and $1.87 last year. Still, the minor upgrade in the full-year outlook, its dismal return on invested capital, and low operating margins continue to stand out. I am equally wary of companies with a Return on Invested Capital (ROIC) below the Cost of Capital (WACC), a sign of value destruction.
Ameren Fundamental Analysis Snapshot
The price-to-earning (P/E) ratio of 20.13 makes AEE an expensive utility stock. By comparison, the P/E ratio for the S&P 500 Index is 30.24.
The average analyst price target for AEE is $112.57. It suggests limited upside potential, while downside risks are high.
Ameren Technical Analysis
Today’s AEE Signal
Ameren Price Chart
- The AEE D1 chart shows price action inside a bearish price channel.
- It also shows price action between its ascending 50.0% and 61.8% Fibonacci Retracement Fan levels, after a one-day reversal from a breakdown.
- The Bull Bear Power Indicator is bearish turned bullish but remains below its descending trendline.
- The average bearish trading volumes are higher than the average bullish trading volumes.
- AEE corrected as the S&P 500 Index hovered near all-time highs, a significant bearish trading confirmation.
My Call on Ameren
I am taking a short position in AEE between $102.05 and $104.83. Valuations are high for a utility company, core operational metrics raise red flags, led by weak operating margins and value destruction, and downside risks outweigh the upside potential at current prices.
- AEE Entry Level: Between $102.05 and $104.83
- AEE Take Profit: Between $91.77 and $93.50
- AEE Stop Loss: Between $106.18 and $109.37
- Risk/Reward Ratio: 2.10
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