Conclusion, Investment Implications, Strategy

Eaton Corporation plc (ETN) appears to be resuming its July 2020 major uptrend amid coincident quarterly relative outperformance versus the benchmark S&P 500 (SPX).  A sustained rise above the $136.11 area would help confirm this and would target an additional 12% rise to $160.00per share.  This is an Asbury Momentum trade idea.

Analysis and Rationale

Eaton Corporation plc (ETN) operates as a power management company. Its Electrical Americas and Electrical Global segment provides electrical components, industrial components, power distribution and assemblies, residential products, single and three phase power quality products, wiring devices, circuit protection products, utility power distribution products, power reliability equipment, and services in North and South America, as well as hazardous duty electrical, emergency lighting, fire detection, explosion-proof instrumentation, and structural support systems internationally. The company was founded in 1916 and is based in Dublin, Ireland.

The upper panel of Chart 1 below plots ETN daily since October 2020 along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies.  The lower panel displays a corresponding daily relative performance chart of ETN versus the benchmark S&P 500 (SPX, blue) along with its 63-day moving average (green, quarterly, our Strategic time period).

Chart 1

The rightmost green highlights in the upper panel show that ETN appears to be resuming its July 2020 major uptrend, as defined by its 200-day MA, following this week’s test of the 50-day MA.  Meanwhile,ETN’s current trend of quarterly relative outperformance versus SPX as shown in the lower panel also appears to be resuming following a test of it at that same time.  The other green highlights show that similar tests of the Strategic relative outperformance trend on Dec 14th and Oct 29th resulted in the resumption of the trends in both panels.  A sustained rise above the 50-day MA, currently situated at $136.11, would help to confirm the outright uptrend has resumed and would target an additional 12% rise to $160.00 per share. 

Table 1 below shows that considering the aforementioned upside target and a protective stop placed below the $137.56 area, a long entry price of $142.56 would provide a 1:3.5 risk/reward ratio (risking $1.00 to make $3.50) with an initial risk of 3.5%.

Table 1


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