When it comes to energy companies, RWE AG (RWE.DE) is an interesting case. They have expertise in oil, gas, and lignite production, as well as the electricity generated from gas, coal and nuclear plants, renewables, etc. They are actually one of the biggest companies in Europe and employ around 60,000 people. They also power more than fifteen million houses, with annual sales of more than €40billion.
RWE is present in Germany, Netherlands, UK, Czech Republic, and many other countries in the central & eastern European markets. This focus on Europe means that their income is localized, therefore the company is not really affected by currency fluctuations from monetary policies made by the ECB (European Central Bank). It is, however, HIGHLY dependent on price fluctuations on commodity markets such as oil and natural gas.
RWE is particularly interesting when looking at them in 2008 before the financial crisis hit. Their share price tumbled from almost €100/share to levels below €10/share, hitting a low of €9.20/share on September 28th of that year. However, after hitting that level, it formed a lower spike, followed by a quick move up – the start of a head and shoulders reversal pattern. This was confirmed by the market, in the sense that it reached the measured move.
It seems that the market is now starting to form another head and shoulders pattern of a larger degree. The new consolidation area for the right shoulder seems to be between the €14/share and €12/share.
The reason for the new spike higher comes from the German state authorities, who recently announced that some utility companies (including RWE), passed the atomic stress test. This news saw share prices of RWE and EON surging, with RWE up more than 16% on that day.
After 2008, the stock market outperformed expectations across the world as central banks flooded markets with cheap money. However, this was not the case for RWE as the company’s share price continued on a downtrend. It may be that RWE is the kind of stock that acts in a divergent manner to that which central banks are moving. Now that the Fed is preparing to tighten things up, RWE may finally be ready to bounce. This is because a move by the Fed will affect markets all over the world – not just that of the United States.
Due to all of the above, I am favoring a call option if the €14/share level is broken. I would also recommend using a one-month expiration date to come out in the money.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
