Last Monday, we featured Exelon Corp. (NASDAQ: EXC), a diversified utility company that focuses on power generation. As one of the largest companies in the industry, it has performed very well over the last three years.
But when we looked at EXC, we saw that the stock was showing signs of weakness. After rising steadily in late August, share prices stalled in September.
It was at that point, a setup to go short started forming. On October 14th (last Monday), we discovered an entry point at $46.50.
Two days later, EXC plunged 4.57%.
Share prices kept falling, bottoming out at a 6.63% drop from our trade trigger. Had you purchased an appropriately priced and dated put option, a near triple-digit gain may have been possible.
This week, EXC is trying to recover. The general market is slowly rising, prodded along by another strong earnings season. If sentiment remains bullish next Monday, investors could enjoy a few new all-time highs from the major indexes.
But even if equities continue climbing, EXC might be doomed. The company is set to report earnings on October 31st before the market opens, and if they fall short of analyst estimates, there could be hell to pay.
Because not only did EXC just fall over 6%, it also created a level of absolutely critical support at $43.42.
If EXC descends below that support level, $42.00 – the yearly high from 2017 – is next.
Past that? $38.78, or 11% below key support at $43.42.
So, if EXC’s earnings are poor and share prices plunge, the stock could completely collapse over the next few months after breaking out to the downside.
That’s not a guarantee, of course. Anything can happen once a breakout occurs.
But with so much room to run beneath support at $43.42, EXC is standing on the edge of a cliff.
Heck, by the time October 31st rolls around, share prices may have already fallen below that point. Earnings may simply make matters worse.
Or, alternatively, bring EXC back from the brink if the company reports strong revenues.
Either way, the fact remains that from where the stock is currently sitting, another great breakout opportunity awaits.
Last time, our short setup worked out beautifully.
Will lightning strike twice? Maybe.
All I know is that if it does, I’d want to have open contingent orders ready to harness its power.
