Todays Big Stock: Transocean LTD (NYSE:RIG)

Last week I wrote an article in regards to the potential trading opportunities for the oil stocks SLB (Schlumberger) and CXO (Concho Resources). Another oil stock that has caught my eye is RIG (Transocean). So, let’s take a look at the 1-year chart of RIG (Transocean) below with my added notations:

RIG has created a common reversal pattern known as a Head and Shoulders (H&S). This type of price action typically occurs after an up trend and signals a potential reversal. Confirmation of this pattern, and the sign that the trend reversal may have started, would be a break of support (neckline) at $75. As you can see, RIG has broken that support, thus should be moving lower.

Another piece of information that can be garnered from price patterns is their price projections. Simply take the height of the overall pattern, in this case $10, and subtract that amount from the breakdown point of $75. This gives you a minimum price target of $65. Obviously, this isn’t a guaranteed forecast, but it does commonly materialize.

The Tale of the Tape: RIG is a stock in the oil services industry that has recently broken support and confirmed its H&S formation. Because of this, RIG should fall to a minimum of $65. A higher risk short position could be entered now, or a lower risk short position entered on a rally back up to $75, if that occurs. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Todays Big Stock: SunTrust Banks, Inc. (NYSE:STI)

From time to time I like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.

One key factor in making that decision will be to decide which side of the trade you believe gives you the highest probability of success. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example.  Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

The trading opportunity that I’d like to review today is that of STI (Suntrust Banks, Inc.).  Before discussing, please review the 1 yr. chart of STI that I have outlined below, with my added notations:

 

STI has formed a common price pattern known as a Head & Shoulders (blue) pattern. This pattern is primarily considered a reversal pattern, meaning that after STI’s multi-year uptrend, the stock may be ready to turn lower. The key to this pattern would be confirmation, which would be a break of the $27.50 neckline (red). You can see that not only is $27.50 a key area of support, but it was also a very important resistance level prior to the end of December 2010. A break below $27.50 would confirm the pattern and signal lower prices are likely ahead for STI.

The Tale of the Tape: STI (Suntrust Banks, Inc.) has formed a common H&S reversal pattern. A break below the $27.50 neckline (support) would be an ideal entry for a short position.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Todays 2 Big Stocks: Schlumberger (NYSE: SLB) & Concho Resources (NYSE: CXO)

Is the run in oil over, or still bubbling? In my opinion, which is dangerously close to a fact, no one knows. My preference would be to select a few stocks within the oil patch, identify important breakout points, and then make the appropriate trade.  So, that is what I decided to do. Two stocks in particular that peaked my interest:

First, take a look at the 1-year chart of CXO (Concho Resources) below with my added notations:

CXO has created a clearly defined breakout point, which would be through $110. A break above this level would be a signal that CXO should be moving higher. However, there is also a clear breakdown level at $98. If CXO were to turn down and break below $98, one would expect lower prices ahead.

Next, you will see similar levels with SLB (Schlumberger) on the chart below:

As with CXO, SLB has created a clearly defined breakout point through the $95 level. A break above this level should signal that SLB is moving higher. Once again, there is also a clear breakdown level in the $80-82.50 “zone”. If SLB were to instead break below $82.50 and/or $80, it would be reasonable to expect lower prices for SLB.

The Tale of the Tape: CXO and SLB are stocks in the oil services industries that are worth watching. They both show clear entry points for long positions on breakouts, while also giving clear entries for short positions on breakdowns. Having stocks in your portfolio such as CXO and SLB with these clear “signals” can set you up for more successful trading, rather than guessing based on opinions.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Todays Big Stock: The Buckle, Inc. (NYSE: BKE)

From time to time, I like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.

A key factor in making that decision will be to decide which side of the trade you believe gives you the highest probability of success. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example.  Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

One trading opportunity that I’d like to review today is that of BKE (Buckle, Inc.).  Before discussing, please review the 1 yr. chart of LTD that I have outlined below, with my added notations:

If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders, and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.

This simplicity is on full display when you look at the chart of BKE above.  BKE had found support at $35 for the last 4 months, which would have provided excellent trading opportunities. However, BKE has recently broken out through a key resistance level of $40 on route to a new 52 week high.  With the market pulling back a bit over the past few days, BKE might also be pulling back. Since $40 was a key level of resistance when the stock was below it, one could expect $40 to act as a key level of support IF BKE pulls back down to it.

The Tale of the Tape: BKE (Buckle, Inc.) has formed key levels at $35, $40 and now possibly $45 if the pattern holds true to form. If BKE were to pull back to $40, entering a long position could be advised in expectation of a bounce higher. If instead BKE were to break above $45, again, a long position could be entered.

What if BKE does come to $40, but breaks lower? Traders could then enter a short position in expectation that BKE would continue down to the next level of support at $35.  Entering a long position at $35 could then be entered as well.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Todays Big Stock – Limited Brands (NYSE: LTD)

From time to time, I like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.

A key factor in making that decision will be to decide which side of the trade you believe gives you the highest probability of success. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example.  Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

One trading opportunity that I’d like to review today is that of LTD (Limited Brands).  Before discussing, please review the 1 yr. chart of LTD that I have outlined below, with my added notations:

If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.

This simplicity is on full display when you look at the chart of LTD above. LTD has formed a very clear trend line of support (blue), as well as a nicely defined trend line of resistance (red). As you can see, the trend lines are converging on one another. At some point, doesn’t LTD have to break either through resistance or below support?

The Tale of the Tape: LTD (Limited Brands) has formed trend line support and resistance over the last 6-9 months. If LTD were to break above the down trending resistance on above average volume, entering a long position could be advised. If instead LTD were to break the up trending support level, a short position could also be advised. Now, could you also enter a long position if LTD approaches that same trend line support? Yes, just like you could enter a short position if LTD approaches the trend line resistance. However, the breakout trades tend to be more desirable.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT