Many investors still find it stunning that a very common commodity can be linked to such incredibly volatile and trade-worthy stocks. However, the water company stocks have consistently been that way for years, and usually towards the bullish side of the table. It looks like they're geared up for another move higher, after suffering a pretty tough drought in the first half of 2006.

The Dow Jones U.S. Water Index (DJUSWU) has been working its way higher since hitting a bottom of 567.13 in June of last year. The current reading of 712.04 means we've seen a gain of 25.5% since then. It may seem incredible to get results like that from a water company stock, and it could even seem downright unbelievable that there are any more gains to be had. However, we think there are - this chart has shown much greater volatility, and much bigger gains than that.

Take for instance how we got to 567.13 in the first place. After peaking at 838.46 in early March of last year, these stocks found themselves 32% lower in less than four months. Of course, that big dip followed an 87% rally in 2004/2005, a three week correction of 18.7%, then a six-week rebound of 23.9%. Point being, this chart can and does move in a major way and sometimes pretty quickly.

The reason we think now may be the right time to get bullish again is the decisive move into new high territory, and a clear break above resistance at the 200-day moving average line (green). All of this, however, is summarized by the recent bullish MACD cross on the weekly chart.

In terms of a target, we don't think 812 is out of the question. We topped very there near three separate times in 2005 and early 2006, so it's not as if the chart would have to break new ground to get back up there. If it did, it would mean a 14.1% gain from current levels.

Dow Jones U.S. Water Index (DJUSWU) - Weekly


That said, we actually feel 812 may be a little conservative. The pullback from early 2006 - and subsequent rebound - may just provide the running start the index needs to break past 812. Remember, we've seen this index rally almost 90% at one point, so don't assume these boring stocks don't have much potential left.

Let's set a targeted percentage move of 25% from current levels. That puts the bar at 888. Of course, we also want to keep a watchful eye on 812, in case the rest of the market is thinking those last three tops are a ceiling.

As far as a stop goes, let's use the 200-day line at 670 as the line in the sand. That should leave plenty of room for volatility, and it's likely to be support anyway.

Note that there is no ETF - and no mutual fund we're aware of - that is specifically designed to mirror this industry. Some of the bigger names in this group are Aqua America (WTR), California water Service group (CWT), SJW Corporation (SJW), and American States Water (AWR).

Price Headley is the founder and chief analyst of BigTrends.com.